China's Zhou: easier policy could mean lower rates

SAO PAULO (Reuters) - Chinese markets could expect more money supply, looser liquidity for banks and lower interest rates as part of a stimulus package, the country's central bank governor said on Sunday.

The comments came soon after Beijing announced a 4 trillion yuan ($586 billion) government spending package to boost domestic demand and also shifted its monetary stance toward "moderately easy" from "tight."

"'Easy' monetary policy could mean, qualitatively speaking, more money supply and a looser market liquidity," Zhou Xiaochuan, governor of the People's Bank of China, said following Group of 20 meetings in Brazil.

"It can also be reflected in prices. For example, the bank lending interest rate could become lower," he added.

In orchestrated moves with other major central banks, Beijing has reduced its benchmark interest rate three times in six weeks in a move to prevent an abrupt fall in the world's fourth-largest economy.

China is now on track to see single-digit expansion this year for the first time since 2003 as its annual economic growth slowed to 9 percent in the third quarter from 11.9 percent for the whole of 2007.

Zhou also said China launched its massive stimulus package in order to prevent an excessive impact from the unwinding global financial crisis.

On Saturday, he said that China can help stabilize the global markets by maintaining fast economic growth, which he sees at about 8 percent to 9 percent in 2009.

Slumping consumer inflation also gave the central bank more confidence to slash interest rates, Zhou said.

"Now inflation has been easing remarkably. And the pace of easing is fairly fast," he said.

China's consumer inflation has fallen steadily since summer this year to 4.6 percent in September from a 12-year peak of 8.7 percent in February.

Zhou attributed the falls in inflation to both Chinese policies to boost market demand as well as weakening global commodity prices.

(Reporting by Eadie Chen, editing by Krista Hughes and Martin Golan)