China will shift to a "prudent" monetary policy next year, the ruling Communist Party decided on Friday, a move that formalizes the government's change in priorities away from driving all-out economic growth toward combating inflation.

The change in the official language used to describe the government's economic policy, from the current "moderately loose," solidifies a transition that has taken place over the last several months. At a time when the U.S. and other major economies are still struggling to propel economic growth, China has increasingly focused on containing inflation and asset-price bubbles, and phased out some of the supportive policies that prevailed during the global financial crisis and its aftermath.

The central bank raised interest rates in October for the first time in nearly three years. Central-bank officials have repeatedly said they want to "normalize" the easy-credit policies that have led to a lending boom of historic proportions. Even before Friday's announcement by the Politburo, the party's decision-making body, most economists had already expected interest rates to march higher next year as the government gets tougher on rising inflation.

The announcement "basically ratifies the emerging market understanding that's been trickling out over the last few weeks," said Arthur Kroeber, managing director of economic research firm GaveKal Dragonomics.

Expectations of tighter policy have been widespread since official figures showed the consumer price index in October rising 4.4% from a year earlier, a two-year high.

Analysts generally expect China to impose a lower target for total lending by banks next year, and have said there could be additional interest-rate or reserve-ratio hikes by the end of this year. The central government has also shown great concern over the social impact of higher prices, rolling out a series of measures intended to help lower the cost of daily necessities such as food.

China's economy, on track to surpass Japan this year as the world's second-largest, has become an increasingly significant driver of global growth. Both Chinese and global investors have at times been rattled in recent months by concerns that China's efforts to crack down on inflation could also punish growth.

But they seemed to take the latest announcement in stride. The Shanghai Composite Index was virtually unchanged on Friday, closing down 0.04% at 2842.43, and traders said the shift in policy was already priced into stocks.

Separately, researchers with the International Monetary Fund said China will need to boost real interest rates and introduce a broad-based property tax if it is to combat surging house prices in key cities. Measures taken in April to cool prices appear to be having some effect but it isn't yet clear if the impact will be lasting, a working paper published Friday argued.

The stimulus plan that China launched in November 2008 to counter the global financial crisis was planned to last only until the end of 2010. Friday's shift to a "prudent" monetary policy returns the official terminology to what was used for many years before the crisis.

The term "prudent"—the Chinese word could also be translated as "stable" or "firm"—is vague enough to not commit the government to specific actions in advance. The statement from the Politburo also said that China will make its economic policy more "targeted, flexible and effective," in standard language that essentially means that policymakers will respond as needed to changes in economic conditions.

And in an indication that the government is not cracking down too sharply on growth, the statement from the Politburo continued to describe the government's fiscal policy with the current term "proactive." Bank of America-Merrill Lynch economist Lu Ting said China may use fiscal policy to partly offset the effects of other tightening measures, just as this year it has sought to restrict property speculation while at the same time ramping up spending on public-housing construction.

The statement from the Politburo also outlined other economic priorities for the coming year, including promoting domestic consumption, raising incomes and supporting "strategic industries" such as electric vehicles and green technology.