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Q2 trends point to yuan move: China govt economist

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littlekracker


April 27, 2010, 12.07 pm (Singapore time)

Q2 trends point to yuan move: China govt economist

BEIJING - China will have to resume movement of its yuan exchange rate to manage a convergence of strong economic growth, exports and inflationary pressure in the second quarter, a senior government economist has said.

In an interview published on Tuesday, Ba Shusong of the State Council Development Research Centre, which advises the Chinese government cabinet, told the China Economic Times that policy makers should focus more on 'making the exchange rate formation mechanism more flexible and marketised.'

Beijing has effectively pegged the yuan at about 6.83 to the US dollar since mid-2008, after three years of gradual appreciation, in an effort to protect its exporters from the global financial crisis.

The United States and other economies have complained that the yuan is being held below the rate an unfettered market would set.

Mr Ba told the Chinese-language newspaper that while the peg helped shore up exports, building domestic economic pressures meant yuan reform should resume. He did not say when that would happen but stressed the importance of the outlook in the second quarter.

'Looking at economic growth forecasts for the second quarter, it's expected that exports will jump sharply in the second quarter, economic growth in the first quarter was also very strong, and price-rise pressures are quiet large,' Mr Ba said.

'Therefore, it will be necessary to resume reforming the renminbi exchange rate mechanism.' The renminbi is another name for the yuan. -- REUTERS

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