China's central bank governor stresses inflation control

China's central bank governor has urged fending off inflationary risks amid worldwide efforts to shore up the sluggish global economy by easing monetary policies.

Zhou Xiaochuan, governor of the People's Bank of China (PBOC), made the remarks in an article published in the latest issue of the Journal of Financial Research, a magazine published by the PBOC.

He said central banks should consider draining excessive liquidity injected into the market and eliminate inflationary pressure in the long-term.

The PBOC has moved cautiously to loosen its monetary policy in response to an economic downturn this year, as it is wary of refueling inflation and boosting housing prices that remain high.

It has reduced interest rates and the reserve requirement ratio for lenders twice this year, but has refrained from further cuts since July.

The year-on-year growth of the consumer price index, a key inflationary gauge, slightly accelerated to 2 percent in China in August from 1.8 percent in July. But it was much slower than the 6.2-percent rate registered in August last year as the economy downshifted and demand weakened.

China's economy expanded at 7.6 percent in the second quarter, marking the first time that the country's economic growth rate had fallen below the 8-percent mark since the fourth quarter of 2009.

Zhou said China's long-term inflationary pressure could be alleviated, as the country's yuan funds outstanding from foreign exchange will grow more slowly in future.

The amount of yuan funds outstanding for foreign exchange decides the amount of yuan funds that the central bank has to inject into the domestic market, as the yuan remains inconvertible under the capital account.

The funds have been shrinking since July as a result of slowing foreign trade and dropping foreign direct investment amid global economic woes.

China's foreign exchange (forex) reserves will not increase ceaselessly, as the share of the current account surplus in the country's economy is already very high and will drop to a reasonable level in future, Zhou noted.

China overtook Japan as holder of the world's largest forex reserves in 2006.

By the end of September, China's forex reserves stood at 3.29 trillion U.S. dollars, edging up from 3.24 trillion U.S. dollars at the end of June, according to data from the State Administration of Foreign Exchange released Saturday.