News & Reports News Year 2012 October 2012 China says its currency close to equilibrium rate

China says its currency close to equilibrium rate

CHINA'S currency has reached its equilibrium rate and its value is mainly determined by the market, rather than intervention, the central bank said yesterday, signaling there is little likelihood of major movement in the yuan's value in the near future.

Speaking at the annual meeting of the International Monetary Fund and World Bank in Tokyo, Yi Gang, vice governor of the People's Bank of China, also warned much monetary easing by major economies puts inflationary pressure on China as it strives to boost growth and keep prices under control.

His remarks came as the issue of China's exchange rate against the US dollar resurfaced in the US presidential race, with Republican nominee Mitt Romney accusing President Barack Obama of ducking an important decision on whether China is "manipulating" its currency to gain a trade advantage.

The Treasury Department was due to announce a decision today, but it said last Friday the decision would not come until after global finance officials meet in early November.

The US has long urged China to lift "controls" on foreign exchange markets that it contends keep the yuan undervalued, making China's exports relatively less expensive in overseas markets.

Yi said China's central bank has refrained from intervening in the market in the past year, while the exchange rate against the dollar remained at around 6.3 yuan per dollar.

"The rate, the spot rate and future rate, determined by the market supply and demand, basically are very close to the equilibrium rate," he said.

The yuan has appreciated more than 30 percent against the dollar since 2005, he said, adding it had "appreciated quite a bit in the past 15 years."

He outlined progress China has made in reforming its financial sector and setting up foreign exchange markets.

He reiterated the concern over inflationary pressures that China and some other developing countries say can be worsened by monetary easing in the US and Europe. Fighting inflation is the central bank's No. 1 priority, he said.

Yi said China plans an appropriately sized stimulus package to counter its slowdown. It will be large enough to stabilize growth but not too large to cause negative impact or problems in the future, he said.

The task is complicated by so-called quantitative easing that unleashes liquidity in global markets, spurring speculation in commodity and energy markets, he said.

But Yi said the outlook for price stability is fine this year, with the consumer price index likely to fall to 2.7 percent for the year, well below the government's 4 percent target.