BLOOMBERG, REUTERS in Beijing and STAFF REPORTER

China's central bank expressed optimism yesterday that economic growth will slow down in the fourth quarter and inflation will stabilise.

It said the consumer price index would gain 4.1 per cent for the full year after slowing to 4.3 per cent in the first 10 months of the year from 5.2 per cent in the first nine.

Government lending curbs had reduced credit growth to a "reasonable" level and new loans and money supply would be within its annual target, the People's Bank of China said in a third-quarter monetary report posted on its website. The data indicates the central bank is unlikely to raise interest rates again in the near future.

But if growth in fixed-asset investment, which covers spending on assets such as roads and buildings, fails to come down further, it may add pressure on the central bank to raise interest rates again.

Beijing raised rates last month for the first time in nine years, by 0.27 of a percentage point, bringing the one-year lending rate to 5.58 per cent and the one-year deposit rate to 2.25 per cent.

The bank said it would continue reforms intended to "let the interest rate lever play a role in optimising resource allocation".

It warned that measures to cool the economy were at a crucial stage and that it would monitor prices carefully to keep investment from flaring back up.

It said investment in factories, roads and other fixed assets remained high and growth might rebound, suggesting the authorities are unlikely to relax loan curbs.

The central bank said it would keep money supply and lending growth at a "reasonable" level to ensure stable growth.

The authorities have imposed lending restrictions and blocked project approvals for industries such as steel, real estate and car manufacturing this year to cool an investment boom that has caused power shortages, clogged transport links and raised raw materials prices.

Fixed-asset investment climbed 30 per cent from a year earlier in the first three quarters of the year, slowing from a rate of 48 per cent in the first quarter.

The bank also reiterated its intention to keep the yuan basically stable, and steadily push ahead with interest rate reform.

The authorities will today announce the latest figures for fixed-asset investment, a key focus of policymakers.

Sebastien Barbe, an economist with Calyon Corporate and Investment Bank in Paris, said he was not surprised by yesterday's report, which signalled that the economic cooling measures would stay in place for a while. "Obviously, there is a need for that because investment and industrial production have remained fairly strong," he said.