BIZCHINA / Center
Inflation hits 27-month high with CPI up 3.4%
By Dong Zhixin (chinadaily.com.cn)
Updated: 2007-06-12 10:42
A woman customer buys por
BIZCHINA / Center
China to have more Euros in forex reserve
By Dong Zhixin (chinadaily.com.cn)
Updated: 2007-06-01 10:44
China plans to increase the ratio of Euros in its foreign exchange
holdings given the stability in the European Union (EU) economic growth
and in the value of the European single currency, central bank vice
governor Wu Xiaoling said Thursday in Brussels. [file]
China plans to increase the ratio of Euros in its foreign exchange
holdings given the stability in the European Union (EU) economic growth
and in the value of the European single currency, said a central bank
vice governor on Thursday.
However, China has no plans yet to reduce the proportion of US dollar
assets in its coffers, Wu Xiaoling told an economic forum in Brussels,
the Shanghai-based Oriental Morning Post reported Friday.
China's forex reserves reached US$ 1.2 trillion at the end of March and
about 70 percent of the holdings are believed to be in US dollar assets,
especially US treasuries.
To address the trade imbalance with western countries, China could take
measures to stimulate domestic consumption and improve the flexibility of
the Chinese currency.
"If we intend to solve the problem of imbalanced trade, we will first
increase the flexibility of the yuan exchange rate, but that will not be
the main means," Wu said.
It is more important for China to increase its citizens' incomes and
boost domestic consumption through the improvement of social security
networks, according to Wu.
She went on to say China will not bow to outside pressure and accelerate
the revaluation of the yuan.
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If China's exchange rate reforms go smoothly, then the appreciation of
the yuan will continue, the central banker said. However, if the
country's economy runs into problems and the exchange rate reforms
stagnate, then the Chinese currency risks depreciation, Wu noted.
On the stock market, she said it is growing too fast and regulators hope
they can develop it in a more stable way. "If the stock market can't
operate smoothly, then investors' confidence will be hurt and their
consumption will be affected."
On top of a 130 percent rally in 2006, China's benchmark Shanghai
Composite Index has surged more than 60 percent so far this year before a
6.5 plummet Wednesday that was caused by a hike of stamp tax to 0.3
percent from 0.1 percent.
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k at a market in Yichang, Central China's Hubei
Province in this June 5, 2007 photo. The consumer price index rose 3.4%
in May over the same period of last year, according to statistics
released on Tuesday by the National Bureau of Statistics. [newsphoto]
China's inflation in May hit the highest level in 27 months on rising
pork and food stuff prices, raising the pressure on the central bank to
raise interest rates.
The Consumer Price Index (CPI), a barometer of inflation, rose 3.4
percent compared with the same period of last year, the National Bureau
of Statistics said Tuesday, beating the three percent target set by the
People's Bank of China for this year.
The increase, after a 3.0 percent rise in April and a 3.3 percent growth
in March, was mainly driven by surging grain and pork prices.
Pork prices climbed 43 percent year-on-year in the first three weeks of
May, according to official figures released earlier. Food accounts for a
third of the consumer price index and meat for seven percent.
The newly-released figure makes May the fourth straight month that saw
inflation outpace the benchmark one-year deposit rate, eroding people's
purchasing power and making the case for an interest rates hike.
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Last week, central bank governor Zhou Xiaochuan said he was "closely"
monitoring the rising food costs and will study May's CPI data before any
interest-rate change.
"Inflation is breaching the target and putting pressure on the central
bank to raise the rates," said Bank of China (Hong Kong) Ltd economist
Michael Dai in an interview with Bloomberg News. He expects the central
bank to increase interest rates twice more this year.
Tao Dong, chief regional economist for non-Japan Asia at Credit Suisse,
believes another three hikes are needed to reduce inflationary pressure
as well as to rein in soaring investment and property prices.
However, HSBC chief China economist Qu Hongbin and CITIC Securities
analyst Chen Jijun disagree. They believe rates hikes will not help curb
inflation as it is mainly caused by the tight supply of some commodities.
The central bank has raised interest rates twice this year, with the
latest coming on May 19 when the benchmark one-year deposit rate was
raised 27 basis points to 3.06 percent, while the lending rate for the
same period was increased 18 basis points to 6.57 percent.
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