China's central bank?Monday reiterated that it will not relax monetary policy in the second half of this year as it continues to battle inflation and speculation in the property market.

"Domestic inflation expectations remain strong and the foundation for stabilizing prices is not solid," the People's Bank of China said in a statement on its website yesterday. "Prices could rebound if the bank's prudent monetary policy stance is relaxed."

Expectations of fast inflation and the PBOC's comment quashed previous speculation inflation in China may have peaked in June and that monetary policy could be loosened.

Guotai Junan Securities and Guohai Securities forecast the Consumer Price Index in July to rise between 6.2 percent and 6.4 percent, while the Industrial Bank and Soochow Securities predicted the CPI growth will range from 6.5 percent to 6.7 percent, higher than a 32-month record of 6.4 percent in June.

"Stabilizing prices is the top priority of the central bank, and it will not allow policies to ease even though economic growth is slowing," Guohai Securities said in a report yesterday. "Liquidity may modestly ease in August but the central bank is likely to increase reserve requirements (on banks) again to withdraw money and stabilize prices."

The PBOC said it will use financial tools such as interest rates, exchange rates, open market operations and reserve requirements ratio to maintain a "reasonable" size and pace of social financing. It will also balance the need to maintain stable economic growth, adjust economic structure and manage inflation, and will continue to maintain monetary policy "at necessary intensity."

"The central bank will increase lending to rural areas and to small enterprises to improve loan structure and balance regional economic growth," the PBOC said. "And the bank will encourage loans to build affordable homes and tighten those for property speculators to ensure the central government's strict controlling measures on the property market are maintained."

The official Purchasing Managers' Index declined from 50.9 points in June to 50.7 in July, the lowest in 29 months, according to the China Federation of Logistics and Purchasing yesterday.