By Xin Zhiming (China Daily)
Updated: 2007-08-09 10:19

The central bank said yesterday it will rely more on the market to increase the flexibility of the yuan.

"The role of market supply and demand will be greater," the People's Bank of China said in its monetary policy report for the second quarter.

It said the exchange rate of the yuan will be kept stable at a reasonable level.

Related readings:  Chinese central bank warns of inflation risks  Central bank raises interest rates, cuts interest income tax  Central bank to apply consistent, moderate tightening policies Special Coverage: Markets Watch

The central bank warned in the report that the trend of China's economic development from relatively fast to overheated has become "more obvious".

China's gross domestic product grew at a blistering pace of 11.5 percent in the first half of this year, with its consumer price index (CPI) hitting a 33-month high of 4.4 percent.

The central bank said that although China's core inflation - which excludes food and energy - is low, it must curb food price rises as most Chinese still spend a large amount of their income on food.

The report also forecast that trade surplus growth may slow, but the surplus itself will remain sizeable on stable world economic growth. It jumped 83 percent to reach $112.5 billion in the first half of this year.

Although China has taken measures to slow exports, the report said it would be some time before they take effect.