UPDATE 1-China c.bank sees credit expansion pressure amid FX inflows
* PBOC to keep prudent policy with fine-tuning
* C.bank: We'll use mixed policy tools to manage liquidity
* Interest rate reform to be pushed in a gradual way
BEIJING, Oct 16 (Reuters) - China's central bank said on Wednesday it will keep monetary policy largely stable but warned that rising capital inflows are putting pressure on credit expansion.
The People's Bank of China (PBOC), in the wake of data showing robust bank loan growth in September, said it will stick to its prudent policy with some fine-tuning and keep banking system liquidity at appropriate levels.
"We must realise that bank lending has increased at a relatively fast pace recently and the rising trade surplus as well as massive foreign exchange inflows have also added more pressure on credit expansion," the central bank said in a statement on its website, www.pbc.gov.cn.
"We will continue to implement prudent monetary policy and make appropriate fine-tuning and pre-emptive adjustment."
Chinese banks made 787 billion yuan ($128.6 billion) worth of new yuan loans in September, higher than a forecast of 650 billion yuan and more than August's 711.3 billion yuan, central bank data showed on Monday.
Large foreign exchange purchases by the PBOC, which regularly intervenes in the market to slow yuan rises, amount to creation of base money and can fuel inflation unless the central bank soaks up the excess yuan injected into the system.
China's foreign exchange reserves - the world's largest -grew by $160 billion in the third quarter, one of the largest increases on record, the central bank data showed, signalling sustained inflows despite a dip in exports in September.
"We will flexibly use a mix of various monetary tools to manage banking system liquidity and guide reasonable growth in credit and total social financing," the PBOC said.
Strong credit expansion in recent months showed that the central bank may have loosened control on bank lending following a liquidity crunch in June. Analysts have warned that the expansion could fan property bubbles and long-term inflation risks.
Separately, Zhou Wangjun, deputy director of pricing department of the National Development and Reform Commission - the top economic planning agency - said on Wednesday that China's annual inflation will be under 3 percent this year.
The government has a 3.5 percent inflation target for 2013. In September, the annual pace quickened to 3.1 percent, a seven-month high, from 2.6 percent in August.
The central bank also pledged to move ahead with reforms to liberalise bank deposit rates in a step-by-step way. It freed up bank lending rates in July.
The central bank said it has not changed change the policy stance on real estate sector.
"We will continue to implement the differentiated credit policies for the property sector and will actively meet the credit demand from first-home buyers," it said.