A report compiled by the Institute of Urban Finance under the
Industrial and Commercial Bank of China (ICBC) predicted the
appreciation of the Chinese currency would accelerate.
The report published Wednesday on the China Securities
Journal stated that a recent interest rate reduction in the
United States had not hindered China's prudent monetary policy for
the time being, but over the long run the influx of liquidity into
the country would quicken and cause the yuan to further
appreciate.
The yuan broke the 7.45 mark on Wednesday, with the central
parity rate at 7.4476 yuan against one US dollar. It was the 68th
new high the yuan had recorded since the start of this year, a four
percent rise accumulatively.
"We should not only focus on the foreign exchange rate
fluctuation in one single day, but keep a close eye on the
long-term trend," Dr. Ou Minggang, Director of International
Finance Research Center under China Foreign Affairs University,
told Xinhua.
"The US dollar has depreciated more than 40 percent compared
with the euro, while the yuan has only appreciated around 10
percent since July 2005. It is possible for the yuan to further
appreciate."
The influx of liquidity due to the continuous appreciation trend
of the yuan and the high rate of investment return expectation in
the country, would also add pressure to overheated real estate and
stock markets, the report warned.
"Worried that the subprime mortgage crisis would drag the
American economy into recession, the US Federal Reserve further cut
the key interest rate on Oct. 31," Dr. Peng Xingyun, a senior
researcher with the Institute of Finance and Banking under the
Chinese Academy of Social Sciences, told Xinhua. "To some extent,
the subprime mortgage crisis was good timing for the US to
influence China's monetary policy."
Ou pointed out that China has taken a series of measures to cool
off the overheated economy, including increasing interest rates,
encouraging domestic consumption and better managing the property
and stock markets.
National Bureau of Statistics figures revealed that the
country's consumer price index (CPI), a key inflation indicator,
rose 4.1 percent in the first nine months over the same period last
year. Fixed asset investment was up 25.7 percent.
Peng held that the government would step up its macro-economic
management in the face of an overheated economic development trend
and the effect of these measures would be obvious after a period of
time.
He also predicted one interest rate increase in China by the end
of this year.
(Xinhua News Agency November 8, 2007)
