Bank to keep RMB rate stable ( 2003-08-06 07:08) (China Daily)
China will keep the exchange rate of its currency stable in the second half
of this year, the central People's Bank of China (PBOC) said yesterday.
The country will "continue to maintain the basic stability of the renminbi
exchange rate'' and will further improve the mechanism through which the rate is
formed on the basis of the existing market-based, managed floating-rate system,
the PBOC said in its second-quarter monetary-policy report released yesterday.
The central bank's rhetoric was unchanged from its usual stance and was the
latest government response towards growing international pressure to revalue the
currency, also known as the yuan.
The United States, Japan and South Korea have called on China to let the
renminbi appreciate. They said the currency is undervalued and is increasingly
making China's exports cheaper as the US dollar -- to which the yuan is pegged
-- keeps weakening.
The Chinese Government has said it will improve the rate-forming mechanism
and will allow the yuan to float in a broader range but it has given no
timetable for doing so.
The central bank noted that, in the remainder of this year, the upward
pressure on the renminbi is likely to rise further as the slow recovery of the
world economy may trigger broader trade protectionism. A United Nations report
on June 25 predicted the world economy would grow by 2.25 per cent this year,
slightly faster than the 2 per cent recorded last year.
The Chinese bank's report said: "The slow growth in the world economy is
likely to further reinforce the international propensity for trade
protectionism, which will constrain increases in China's exports and heighten
the pressure for the renminbi to appreciate.''
The PBOC has already been scaling up purchases of mounting US dollar excesses
in the market, largely as a result of strong export rises, to keep the yuan
within its usual trading band of 8.2760 to 8.2800.
Such dollar purchases have translated into fast-growing supplies of renminbi
and have pushed China's money supply to levels where the likelihood of serious
inflation becomes a possibility, though a remote one.
The central bank also reiterated that it would maintain "a prudent monetary
policy'' to support economic growth, although the growth of the broad money
supply M2, which covers cash in circulation and all deposits, had quickened to
20.8 per cent in the first half of this year from 16.8 per cent last year.
But it called attention to the rapid rises in loans this year and said it
would further examine the causes behind them.
