Nov. 8 (Bloomberg) -- China's inflation may be 4.5 percent this year and the economy is likely to expand more than 11 percent, the People's Bank of China said.

The forecasts are in a quarterly report on monetary policy, posted on the central bank's Web site today.

September's inflation rate of 6.2 percent was close to a decade high and more than double the central bank's 3 percent target for the year. Record trade surpluses flood the financial system with cash, fueling consumer prices and asset bubbles.

China may increase interest rates for a sixth time this year to prevent the world's fourth-largest economy from overheating, according to a Bloomberg News survey of economists. Growth was 11.5 percent in the third quarter.

The central bank will strengthen liquidity management, using bond sales and banks' reserve requirements as tools, according to the report. It will keep the yuan at a ``stable, reasonable level'' and increase the currency's flexibility.

The People's Bank of China is concerned about the effect on the global economy of fallout from the U.S. housing recession, the report said.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net

Last Updated: November 8, 2007 05:44 EST