Central bank: Taming inflation still China's priority

China's central bank said in a monthly report that inflation remained elevated and the authorities will maintain tightening overall credit supply to tame further price rises. The People's Bank of China has earlier ordered the country's major lenders to freeze at least 20 billion (US$3.1 billion) at the central bank, via designated central bank bills, as a "punishment" for lending too excessively in August, media reports said, citing unidentified banking sources. And, the central bank has kept the major lenders' required reserve ratio at a historically high of 21.5 percent to rein in credit supply. "Some factors that drive prices upward have been contained but not yet eliminated, and inflation remains relatively high," the central bank said in a statement on its website Monday. Inflation peaked at 6.5 percent in July, hitting a 37-month high. It cooled down a little bit in August, rising 6.2 percent, said the National Bureau of Statistics last week. Prices of food, including animal meat, eggs, vegetables and fruits, rose 13.4 percent year-on-year in August.The majority of Chinese urbanities, particularly pensioners, are complaining about lowered living standards as inflation has eroded the buying power of their meager salaries. The authorities will continue to prioritize curbing prices and maintain its prudent monetary policy. It reiterated that stabilizing overall price levels remained the top priority of macro-economic regulation, and the country would continue its prudent monetary policy and keep the growth of credit stable and moderate. On Sunday, the central bank said new loans reached 548.5 billion yuan in August, 55.9 billion yuan more than July and 9.3 billion yuan more than the same period last year. "The growth in new loans probably indicates that the monetary policy has been easier to some sectors such as small businesses, but the monetary policy in general has not loosened as inflation is not likely to cool significantly in the near future," the Bank of Communications wrote in an analysis. The report said the central bank will rely more heavily on open market operations to withdraw liquidity, and estimated that new loans will total 7 trillion to 7.3 trillion yuan this year, compared to last year's 7.95 trillion yuan. Peng Wensheng, chief economist with China International Capital Corp, said another interest rate rise is likely this year, most likely this month or in October, to further contain inflation.