"The excessive liquidity has eased but its root cause has yet to be reversed," Chen Daofu, a vice director of research of the finance research department under the Cabinet, told the official China Securities Journal.

"The problem of excessive liquidity emerged in 2002. Since then, the government has been engaged in a lengthy battle to rein in the problem mainly through tightening monetary measures."

Chen said the major economic indicators remain high, despite a series of interest rate hikes and increases in banks' reserve requirements over the last 15 months, aimed at braking an economy that last year grew at 11.4 percent.

He underscored that inflation, which in February soared to a near 12-year high, could get worse due to the shortage in food, raw materials and energy sectors.

China still has more room to hike the bank reserve ratio to further cool bank lending, Chen said.

The central bank raised the amount of money that the commercial banks must keep in reserve by half a percentage point to 15.5 percent from March 25.

The Chinese government has targeted eight percent economic growth for this year while it vowed to maintain inflation at 4.8 percent for this year.

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