BEIJING China's central bank took aim at inflation once again on Monday by saying it will control lending and money growth in the world's second-biggest economy to head off price pressures and asset bubbles.
In a statement on the central bank's website (www.pbc.gov.cn), Hu Xiaolian, a deputy governor, said China had been normalizing policy and will explore new ways to manage excess cash, which is seen as a major driver behind 28-month high inflation.
Her remarks reinforced statements from China's top leaders that the task of taming inflation will be a priority for Beijing next year.
"An implementation of prudent monetary policy is helpful in strengthening the management of inflationary expectations and in fending off asset bubbles," Hu said.
On Saturday -- Christmas Day -- the central bank surprised investors with a 25-basis-point rate rise in benchmark deposit and lending rates, its second increase in just over two months.
Hu reiterated the central bank's determination to drain excess cash from the financial system by using all tools at its disposal: interest rates, reserve requirement ratios, open market operations and more.
"We will explore new tools ... to keep a good control on the gate of liquidity," she said, but did not indicate what these might be.
A steady stream of anti-inflation talk from the Chinese central bank has led many investors to bet on more rate increases in 2011.
A Reuters poll showed investors see the benchmark one-year deposit rate rising to 3.25 percent by the end of next year, from 2.75 percent now.
The specter of more tightening cast a pall over Chinese stocks on Monday, though investors abroad were more sanguine, in part due to confidence that China's steady tightening is a sign of solid growth in its vast economy.
In a separate statement, the monetary policy committee within the central bank noted China's economic resilience, but with a touch of caution.
"The improving trend in our economy is solidifying and the financial system is working smoothly," the committee said after a quarterly meeting.
"But it is still a pressing task to manage credit, money and liquidity as well as cut financial risks," it said.
The committee has no decision-making powers within the central bank. The central bank in turn has no autonomy over monetary policy and any move on interest rates has to be approved by the highest echelons of power within the government.
(Reporting by Langi Chiang, Aileen Wang and Koh Gui Qing; Editing by Simon Rabinovitch and Ben Blanchard.)