BEIJING -- China's central bank warned there is growing likelihood of a further downturn in China's economy, and that "relatively large" deflationary pressures loom.
In its annual monetary policy report published Monday, the People's Bank of China reiterated that it remains committed to keeping its yuan exchange rate at a balanced level. The report said the central bank also plans to use interest rates and banks' reserve requirement ratio to manage liquidity in the banking system.
Given "the contraction in external demand, excess capacity in some industries, management difficulties at corporations, [and the] increase in urban unemployment, the downward pressure on [China's] economic growth has clearly increased," the report said.
There could be global inflationary pressures in the medium-to-long term, but in the short term, deflation is the greater danger, the bank said.
"The risk of deflation is relatively large" due to falling raw-material prices in the international market and weak external demand causing overcapacity within China, the bank said.
The report didn't appear to signal any policy change was imminent in terms of the central bank's moderately loose monetary policy, but it did say that pushing forward reform of the country's electricity-pricing mechanism is among its tasks for 2009.
The central bank already set out in its December executive summary that it will target a growth rate of about 17% for broad money supply, M2, this year