Special Report: Global Financial Crisis

    BEIJING, Feb. 26 -- China's central bank on Monday warned of deflation in the near term caused by continuing pressure on prices. The People's Bank of China (PBOC) said commodity prices were low and weak external demand could exacerbate domestic over-capacity.

    China's consumer price index (CPI), a major gauge of inflation, rose 1 percent in January from a year earlier. In that period, the producer price index (PPI), a measure of inflation at the wholesale level, dropped 3.3 percent. But the PBOC warned of medium and long-term inflation risks.

    As central banks worldwide injected a huge amount of liquidity into the financial system, commodity prices could repeat earlier rallies if market confidence recovered.

    The PBOC said that China's economy faced further risks because of slackening external demand, over-capacity in some sectors and increases in urban job losses.

    The gross domestic product expanded at a slower rate of 6.8 percent in the fourth quarter of 2008, as exports slumped and the property sector sagged, dragging down growth for the whole of 2008 to a seven-year low of 9 percent.

    But China had huge market potential and -- as the macro controls started to take effect -- its economy was likely to maintain stable and relatively fast growth.

    To spur growth, the PBOC said it would ensure ample liquidity in the banking system and promote the reasonable and stable growth of credit.

    It also reaffirmed that China would keep the Renminbi (RMB) exchange rate stable.

    Xinhua News Agency correspondents reporting from Beijing.

    (Source: XHTV)