BEIJING - China's consumer inflation will be kept well below the ceiling of 4 percent in 2011, despite new loans of about 7 trillion yuan ($1.06 trillion) which will impose still greater pressures on liquidity, according to a report released by the Institute of International Finance under the Bank of China on Wednesday.

"As the economic growth rate slows down, general demand and supply will move in the right direction, which will help to check inflation, and prices of international commodities such as oil and iron ore will remain stable next year," said the report.

It predicted China's GDP growth rate will be around 9.5 percent next year, 0.5 percentage points lower than 2010, with the industrial output growth rate declining to 13 percent from the 15 percent of 2010. Meanwhile, urban fixed-asset investment will increase 20 percent year-on-year, down 3.5 percentage points from the 2010 figure.

"In addition, the 'prudent' monetary stance of the central government and normalized credit will also help to cool down inflationary expectations," said Zhou Jingtong, senior economist with the institute, predicting new loans will be around 7 trillion yuan, 0.5 trillion less than the government's 2010 goal.

He said despite downward factors, greater challenges still exist as prices of agricultural products and labor costs will continue to rise.

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Regarding liquidity, he said, "The high level of new credit, and rising capital inflows driven by growing expectations of yuan appreciation, will not substantially reverse the excessive liquidity in the domestic market."

The country is facing inflationary pressures after the consumer price index (CPI), a main gauge of inflation, accelerated to a 28-month high of 5.1 percent in November.

Liu Shijin, deputy director of the high-profile Development Research Center under the State Council, said that CPI probably will reach 6 percent in the first quarter of 2011 before any signs of a decline.

The National Development and Reform Commission said the nation has set a target of 4 percent for CPI growth next year.

Ma Jun, chief economist of Deutsche Bank in China, said earlier that the government should keep new loans below 6.5 trillion yuan, and increase interest rates by as much as 150 basis points in 2011 to reach that target. The government will be able to keep inflation in check, said Premier Wen Jiabao on Dec 26 in a radio broadcast, after the central bank raised interest rates for a second time in just over two months.

To soak up excessive liquidity and curb inflation, the central government has raised the reserve requirement ratio for banks six times and increased interest rates twice this year to support healthy economic development.

A new round of monetary easing policy in the major economies is very likely to be imposed in 2011, which may increase liquidity.