RTTNews - China's inflation could bottom out at the end of the third quarter before rebounding, the People's Bank of China said Tuesday.

In a report published on its Web site, the central bank said inflationary expectations are emerging and imported inflationary pressure is likely to rise in the months ahead.

China's CPI fell 1.7% year-on-year in June, its fifth straight drop. Meanwhile, the economy expanded 7.9% in the second quarter from a year earlier.

Chinese regulators on Monday warned that fresh asset bubbles are forming in the economy and ordered banks to ensure unprecedented volumes of new loans are channeled into the real economy and not diverted into equity or real estate markets, the Financial Times reported.

According to the newspaper, Chinese regulators are now concerned that too much money is being lent by the state-controlled banks. Regulators are of the view that the country's tentative economic rebound could come at the cost of a stable financial system.

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