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China Should Let Yuan Rise to offset Imported Price Rises

BEIJING, May 21 (Reuters) - China should let its yuan currency strengthen to help offset the impact of rising import prices, a central bank official said in remarks published on Friday.

Chinese policymakers have pledged to take measures to cool red hot commodity prices and prevent them being passed on to consumers, after producer price inflation accelerated to the fastest pace in three and a half years in April.

“As an important commodity consumer in the world, the imported impact from international prices is inevitable,” Lu Jinzhong, head of research at the Shanghai branch of the People’s Bank of China, wrote in China Finance, a magazine run by the PBOC.

China should “enhance the flexibility of the exchange rate, and let the renminbi (yuan) appreciate appropriately to offset the imported effect”, Lu said.

The yuan has gained over 2% since early April against a broadly weaker dollar, and traders are debating how much more strength authorities will tolerate.

Despite a push to increase global use of its currency, China has maintained a tight grip on the yuan due to concerns that excessive volatility could affect cross border capital flows and harm the economy.

The global economic recovery and ultra-loose monetary policy adopted by major central banks have driven imported price rises, Lu said.

Rising commodity prices could hit Chinese firms and increase credit risks of commercial banks, he added, adding that Chinese firms should hedge price risks via instruments such as futures.

Higher commodity prices and a low base of comparison last year could further drive up China’s producer inflation in the second and third quarter, the central bank has said.

Reporting by Kevin Yao; Editing by Kim Coghill

Source: Reuters


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