PBOC official: Price stability is key priority for the central bank

China's inflation is likely to see moderate growth this year, but a consistent pickup is unlikely given the constrained consumption of services, a senior central bank official said on Friday.

The People's Bank of China, the central bank, is keeping a close watch on changes in the core Consumer Price Index or CPI, an indicator of inflation that excludes volatile food and energy prices, which is currently still at a low level, Chen Yulu, vice-governor of the PBOC, said during a news conference in Beijing.

Growth in personal incomes is recovering. But the resurgence of novel coronavirus infections in some regions may continue to constrain the consumption of services, said Chen. When the domestic economic recovery stabilizes, the core CPI will increase at first and moderate later in the year, he said.

China's CPI rose by 0.2 percent on a yearly basis in December, compared with a 0.5 percent decline in November, driven by rising food prices and production costs due to the cold weather, the National Bureau of Statistics said.

Sun Guofeng, head of the PBOC's monetary policy department, reiterated on Friday that achieving price stability is the key priority for the central bank.

The central bank should not adopt a "flood irrigation type" of easing and instead focus on avoiding a distorted price structure and asset bubbles triggered by high inflation and currency depreciation, Sun said in an article which was published on Wednesday.

Sun said during the briefing that the current level of interest rates is just "appropriate", with declines of the real lending and deposits rates in 2020. The interest rate for corporate loans dropped to the lowest level since 2015 by the end of December.

The reserve requirement ratio for financial institutions, or the amount of cash they must set aside as reserves, is at a relatively low level compared with other countries, said Sun.

PBOC officials have pledged to use conventional monetary policy tools and maintain ample liquidity, even as the United States on Thursday unveiled a $1.9 trillion coronavirus rescue package called the American Rescue Plan aimed at boosting spending and supporting households and businesses through the pandemic.

Speaking at a virtual event on Thursday, US Federal Reserve Chair Jerome Powell also indicated the organization's resolve to maintain a loose monetary policy, which is featured by close-to-zero policy rates and monthly asset purchase programs.

Price fluctuations in the global financial market have reflected the US monetary easing and fiscal stimulus, while China will set its monetary policy mainly based on the domestic economic situation, said Sun, adding that the yuan exchange rate will be decided mainly by the supply and demand relationship in the market.

Chen said it is necessary to monitor cross-border capital flows and improve macro-prudential measures to prevent systemic risks. He also called for strengthening international policy coordination under the G20 mechanism.