BEIJING (MNI) - The Chinese central bank had little new to offer those looking for signs in its latest monetary policy report that more flexibility will be introduced into the yuan exchange rate mechanism in the near-term.

The People's Bank of China said in the report, published on its website following the latest meeting of its monetary policy committee, that it intended to keep the yuan stable at a 'reasonable and balanced level', repeating the standard phrasing of senior government officials used both before and after July's 2.1 pct revaluation.

But the PBOC did say that it would work to allow market forces to increasingly determine the exchange rate going forward, echoing what US President George W Bush earlier today said he would be urging his Chinese counterpart Hu Jintao to do when they meet in Beijing at the end of next week.

The government's campaign to talk down yuan appreciation expectations -- using much the same phrasing as appeared in today's report -- is showing signs of success.

Chris Chung, assistant manager at Liu Chong Hing Bank in Hong Kong, said that there is hardly any speculation in the non-deliverable yuan forwards (NDF) market -- the offshore focus of appreciation expectations -- about an imminent yuan revaluation.

'Trading in one-year yuan NDFs is rangebound -- most people don't expect the Chinese government to make any adjustment on the yuan in the short term, despite the pressure being exerted by US officials,' he said.

yuan to appreciate to 7.7713 to the US dollar in 12 months from now, compared to today's closing rate of 8.0857 -- just short of a 4 pct appreciation over the period.

Although deflation remains a current buzzword after consumer price growth dropped to 0.9 pct in September, the central bank said in the report that price controls have stored up enough inflationary pressures in the economy to ensure that these concerns are unwarranted.

Based on September's economic indicators, private sector economists have estimated that investment now accounts for well over 50 pct of GDP growth, and has actually increased in recent years.

The target for the creation of new loans this year was kept at 2.3-2.5 trln yuan, while monthly indicators of new loan growth have remained largely flat, suggesting that increasing investment is being financed by non-traditional sources.

Citigroup's Huang, for example, said that bank loans fund only a quarter to a third of investment, and that the rise in M2 could reflect the recourse to alternative sources of financing.

Analysts were not willing to take the central bank's decision to raise its target for full-year M2 to 17 pct, from the previous 15 pct, as a sign of monetary policy easing.

'The central bank has been forced to increase money supply to handle capital inflows, the trade surplus and (foreign direct investment),' said Li Ruoyu, an economist with the State Information Center, a government-funded research unit.

And while the PBOC said in its report that pressure on the currency is showing signs of easing, analysts noted that rising M2 growth also suggests that the central bank is remaining vigilant and keeping enough liquidity in the system, particularly in the money markets, to hold rates down and deter speculation.

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