Its MD says a faster pace of appreciation of yuan is needed to address economic challenges
(BEIJING) China’s economy is likely to grow around 10 per cent this year despite a global slowdown stemming from the US sub-prime mortgage crisis, Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), said yesterday.
Mr Strauss-Kahn said he had agreed with Premier Wen Jiabao and central bank governor Zhou Xiaochuan on the need for China to run a continued tight monetary policy to contain investment growth and inflation.
The inflation-adjusted exchange rate of the yuan, measured against the currencies of China’s main trading partners, has been moving in the right direction recently, Mr Strauss-Kahn told a news conference during a two-day visit to Beijing.
‘However, we encourage a faster pace of appreciation that would be helpful for addressing China’s key economic challenges and would also contribute to preserving global economic stability,’ he said in a prepared statement.
The central bank, which keeps the currency on a tight leash, let the yuan rise yesterday to 7.1760 per US dollar, the highest since it was revalued by 2.1 per cent in July 2005 and cut free from a dollar peg to float within narrow bands.
The yuan has now appreciated by 13 per cent against the dollar since then. But it has gained much less when measured against a basket of currencies and, to the ire of European policy makers, is actually worth less against the euro than it was in July 2005.
Relations between the IMF and China have been strained since the fund introduced new currency surveillance rules last June. Beijing objected to the rulebook, which will make it easier for the fund to determine whether a country is pursuing policies that lead to a fundamentally misaligned exchange rate in order to boost exports. China regards the new framework as a ploy by the United States to enlist the fund in its campaign for a stronger yuan.
The dispute has delayed the completion of the fund’s 2007 report on China detailing economic consultations between the two sides.
Mr Strauss-Kahn sidestepped a question on whether the yuan was fundamentally misaligned, saying the decision was one for the IMF’s board. But he said he had sought to make the case to Chinese policy-makers that a more flexible exchange rate would contribute both to a better-balanced Chinese economy and to global stability.
Source: Reuters (Business Times 16 Feb 08)