Since the start of this year, Premier Wen Jiabao has insisted that curbing soaring prices is the government's top priority, as the leadership is concerned that politically-sensitive price rises could trigger discontent and social instability.

But inflation has slowed in recent months since hitting a three-year high of 6.5 per cent in July. The consumer price index (CPI) rose 5.5 per cent in October, down from 6.1 per cent in September. Some analysts said that opened up the possibility for policymakers to begin easing money supply. A first step in that direction was taken on Wednesday when the People's Bank of China cut banks' reserve requirement ratios - the amount of deposits they must keep on hand - by 50 basis points.

'Lower inflationary pressure leaves room for further policy fine-tuning,' said Zhang Zhiwei, chief China economist with Nomura Securities, citing the fact that the central bank eased liquidity restrictions slightly through open-market operations in October. 'We expect this type of fine-tuning to continue.'

Lu Ting, chief China economist with Bank of America-Merrill Lynch, said while policymakers might keep the taming of inflation a top priority, he could see policies 'increasingly nudged towards pro-growth'. 'Fiscal policies could be slightly more proactive,' he said. Wen has declared the need for economic 'fine-tuning' twice recently, following an October visit to Wenzhou, the epicentre of a credit crunch.

Vice-Premier Wang Qishan has also talked about the need to shift towards a more pro-growth policy. 'An unbalanced recovery would be better than a balanced recession,' Wang said last week. But most analysts remain cautious about predicting any significant policy shift in the near future.

'Consensus has it that a cooling CPI, the slowing economy and tight liquidity conditions in China warrant an immediate massive monetary easing. We beg to differ, as conditions for such a policy change of heart are just not there yet,' said Hao Hong, chief financial analyst of global strategy and equity research at China International Capital.

Wang Tao, chief China economist with UBS, said she believed 'there will probably be no big announcement or big policy action'.

'Since the slowdown in China's exports and economy has been gradual, and since the government is still dealing with some of the negative effects of the previous stimulus, we think the government will be cautious not to ease policy too much too soon,' Wang said.

Already, bank lending is rebounding following months of a credit crunch that has starved the private sector, a key producer of jobs and taxes. Beijing has also ordered banks to support small and medium-sized firms. And the People's Bank of China has eased its capital reserve requirements for more than 20 rural credit co-operatives. Analysts said Beijing would press ahead with a large spending plan for so-called 'strategic sectors' and might consider other measures that would stimulate growth, including a pilot value-added tax reform and some reduction of fees paid by smaller firms.

Bank of America-Merrill Lynch's Lu said the self-correcting market mechanisms, the economy's resilience, and Beijing's responsiveness should not be underestimated.

$63b

Beijing's easing of banks' capital reserve ratio is equivalent to injecting this amount, in US dollars, into the economy