China says to conduct tight monetary policy in '08

BEIJING, Dec 29 (Reuters) - China's central bank will implement a tight monetary policy in 2008, using a range of tools to keep a check on liquidity, central bank governor Zhou Xiaochuan said in comments published on Saturday.

The People's Bank of China has waged a war on excess liquidity and inflation in 2007, raising interest rates six times and increasing the proportion of deposits that banks must hold in reserve 10 times, to a record level.

Still, annual consumer inflation is running at the quickest pace in over a decade, and many economists are concerned that it could spill over from food into the broader economy.

In a New Year's address to his staff, Zhou said that 2008 would bring fresh challenges.

"(We must) step up and improve macroeconomic controls, expand the role of monetary policy in economic controls, carry out a tight monetary policy, make coordinated use of a range of monetary policy tools and use effective measures to step up management over liquidity," he said.

Zhou's comments echo a shift in policy articulated at a recent government economic work conference, at which Beijing said it would move to a "tight" monetary policy from the previously "prudent", or slightly more accomodative, one.

Zhou gave the central bank good marks for 2007, saying it had improved its use of financial and macroeconomic controls and stepped up the effectiveness of monetary policy.

He made no assessment of current economic conditions, including any views on inflation.

Zhou also reiterated the PBOC's long-standing view that it will work to improve the yuan's CNY=CFXS exchange rate regime, adding that it would seek to better adjust domestic demand and improve the balance of international payments. (Reporting by Jason Subler; editing by Jan Dahinten)