PBOC Says China Shouldn’t Be ‘Blindly Optimistic’ on Prices

China can’t be “blindly optimistic” about the outlook for inflation at a time when uncertainties remain in areas such as property and farm-produce prices, the central bank said.

China will continue to pursue a prudent monetary policy to keep prices stable, the People’s Bank of China said in its first-quarter monetary policy implementation report. It will also push forward with interest-rate liberalization and changes to the way the yuan’s exchange rate is set, according to the report issued late yesterday.

The comments suggest the central bank is reluctant to loosen monetary policy even with low inflation and a growth slowdown, according to Nomura Holdings Inc. Data yesterday showed the consumer price index rose 2.4 percent in April, below the government’s 2013 goal for a fourth straight month.

“The PBOC remains concerned about inflation,” Zhang Zhiwei, chief China economist at Nomura in Hong Kong, said in a note last night. Further policy easing is unlikely and economic growth will slow “as the government focuses on the quality of growth and financial risks,” he said.

Moves to loosen government control over utilities and resources may also lead to higher inflation later in the year, the central bank said in its report. Food costs rose 4 percent last month from a year earlier, compared with 2.7 percent the previous month, with fresh-vegetable prices helping drive the pickup in broader inflation from March’s 2.1 percent pace, according to the statistics bureau.

Surging capital inflows also complicated the central bank’s task in guarding against a flare-up in inflation, the PBOC said. China’s money-market rate yesterday snapped a three-day drop as the central bank sold bills for the first time since 2011, draining cash from the financial system as accelerating yuan gains spur capital inflows.