China's central bank said yesterday that the government's efforts to calm economic growth have started to pay off, but more work needs to be done to prevent the overheating of certain sectors and inflation from taking off.

The People's Bank of China said in a statement that the nation's economy was enjoying stable and rapid growth.

At its first quarterly meeting of the year, the central bank's Monetary Policy Committee said the government would stick to its "prudent monetary policy."

The central government introduced macroeconomic measures last year to cool down growth in a number of overheating sectors.

But, striking a note of caution, the central bank warned that there still remained the possibility of a rebound in fixed asset investment. China's urban fixed asset investment grew 24.5 per cent year-on-year during the first two months of this year, according to earlier figures from the National Bureau of Statistics.

The central bank said earlier that it was targeting a broad money supply of 15 per cent this year, 2 percentage points lower than last year's target, in order to fuel healthier economic growth.

The broad money supply (M2) grew 14 per cent year-on-year in January. The M2 growth rate was 14.6 per cent at the end of last December.

But the central bank also claimed inflationary pressures had not fundamentally eased.

China's consumer price index, policy-makers' key barometer of inflation, rose 2.9 per cent year-on-year during the first two months of 2005.

Economists believe consumer prices will continue to face upward pressures, because of increasing energy and raw material prices, as well as the possible rises in labour costs.

Local governments' strong desire to raise the prices of public utilities such as water and electricity will also pile on inflationary pressures, they agreed.

(China Daily March 25, 2005)