Currency play to curb inflation: China
According to the report from two Chinese state researchers, it was highlighted that government should use the yuan to curb inflation that is at 32 month high in March. Ba Shusong, a researcher at the State Council’s Development Research Center, said" It will help to deal with imported inflation by moderate yuan appreciation" While Wang Yong, a professor at the central bank’s training center has added that policy makers should let the currency rise faster and widen its daily trading band in the second half of the year.
Premier Wen Jiabao said last week that the exchange rate may play a role in prices and deputy central bank governor Hu Xiaolian said more yuan flexibility would ease inflation pressure.
Wang wrote a statement & published in today’s Securities Times “Allowing faster appreciation of the yuan will be an important policy to be considered in the next phase” of deciding how to control price increases as the cost of internationally traded commodities continues to surge. He also, opposed of currency revaluation.
Figures of Inflation Impact:
China's crude oil shipments rose 12% by volume and 39% by value to $43.7 billion in first quarter. Cost of iron ore imports jumped 82.5 % to $27.7 billion and the amount of metal climbed 14.4% as per custom data.
Ba said policy makers may use foreign-exchange tools more frequently than in the past to tame inflation. Also, China's foreign-exchange reserves may climb to $4 trillion next year, which force central bank to drain liquidity from the system. The nation’s foreign-currency holdings, the world’s biggest, rose by the second-largest amount on record in the first quarter to exceed $3 trillion, the central bank said April 14.
The People’s Bank of China has raised borrowing costs and savings rates four times since mid-October. Its benchmark one- year lending rate is 6.31 percent and the deposit rate stands at 3.25 percent. The U.S. Federal Reserve’s benchmark interest rate stands at a range of zero to 0.25 percent.
Record Gains
Yuan traded at the biggest premium to the spot rate in more than five months.
The Chinese currency is currently allowed to rise or fall as much as 0.5 percent against the U.S. dollar from a daily reference rate set by the People’s Bank of China.
Yuan appreciation may alleviate pressure on the central bank to buy foreign currency, which would help ease excessive liquidity and curb inflation, Wang wrote today. The government at the same time should strengthen supervision of capital flows as yuan gains may attract hot money, thereby boosting liquidity and increasing inflation pressure, he said.
The Ministry of Commerce said today there is “relatively large” pressure for the yuan to appreciate, which has had an impact on export orders. ( Source: Bloomberg)
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