A senior Chinese central banker on Thursday played down the need for an imminent rise in borrowing costs to keep a balance between growth and inflation in the world's third-largest economy.

Zhu Min, a deputy governor of the People's Bank of China, reaffirmed the central bank's intention to refine its exchange-rate regime but gave no clue as to when it might drop the yuan's 20-month-old peg to the dollar.

China should, China would, continue to improve its managed floating exchange rate regime based on market demand referenced to a basket of currencies, Zhu said.

We should and we could, he told the Credit Suisse Asian Investment Conference.

China is under intense pressure from Washington to let the yuan resume its rise in order to reduce its trade surplus.

The United States, saddled with near double-digit unemployment, argues that the yuan is unfairly undervalued, giving Chinese exporters an edge in global markets that destroys U.S. jobs.

China should and could import more and keep the surplus small. I think this is good for China and this is good for the world, said Zhu, who is due to take up a senior post at the International Monetary Fund in May.

He said the PBOC was concerned about containing inflation expectations but signaled that it was wary of endangering growth by jacking up interest rates when it has other instruments in its policy toolkit that it can use first.

Interest rates are part of the whole thing, not necessarily the issue, said Zhu, speaking in English.

So far this year the PBOC has twice raised the proportion of deposits that banks must hold in reserve instead of lending out. The central bank has also drained large volumes of cash from the banking system through open market operations.

But, unlike the central banks of Australia, Malaysia, Vietnam and -- last Friday -- India, the PBOC has not changed its benchmark interest rates.

When we cope with inflation expectations, we are very careful. We want to make sure we maintain stability, liquidity and growth. We are very careful with interest rates: this is a heavy-duty weapon, Zhu said.

EURO WOES

He reiterated the central bank's wish to see a smooth pace of lending throughout the year and said loan growth was likely to slow further this month after halving in February to 700 billion yuan.

The bank has instructed banks to reduce total net new lending this year to 7.5 trillion yuan from a record 9.6 trillion in 2009, when lenders scrambled to put loans on their books to support the government's economic recovery plan.

Zhu singled out sovereign debt strains as one of the risks facing the global economy. Greece's fiscal woes were a long-term problem that was not amenable to a quick fix, he said.

We don't see decisive actions telling the market we can solve this, he said.

The euro on Thursday fell to its lowest level against the dollar since last May as a ratings agency downgrade of Greece, coupled with political deadlock in the euro zone over how to help Greece, soured sentiment toward the single currency.

(Writing by Alan Wheatley; Editing by Ken Wills)

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