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China's central bank stoked expectations of further renminbi appreciation on
Wednesday by saying the exchange rate could play a role in addressing
international payments imbalances.
The statement, in the People's Bank of China's second quarter monetary
report, came a day before China announced a record trade surplus for the third
straight month in July, news which would add to the pressure on Beijing to
adjust its currency.
There has been speculation that Beijing is poised to take a bolder approach
toward the renminbi after keeping it under tight control since scrapping its peg
to the US dollar a year ago.
The renminbi has risen just 1.66 per cent since Beijing's 2.1 per cent
revaluation last July, in spite of soaring trade surpluses and complaints from
the US that the currency is undervalued.
However, the PBoC has recently permitted slightly greater daily volatility in
the renminbi-dollar rate and allowed a series of record highs for the currency.
This has fuelled predictions it will widen the current 0.3 per cent daily
trading band and allow a more rapid appreciation.
The PBoC insisted in its report that the focus of efforts to reduce the
imbalance in international payments should be an expansion of consumption and
reduction of savings, which would improve the quality of growth, while cutting
exports and boosting imports.
The bank stressed, in its section on policy thinking, that international
payment imbalances could "certainly not be resolved solely by relying on
exchange rate appreciation".
However, it said "appropriate use" should be made of the "special effects"
the exchange rate could have in efforts to adjust the structure of the economy
and achieve "overall balance".
"As part of a package of measures, the exchange rate can play a certain role
in addressing the imbalance in international payments," the bank said.
It gave no details and the statement falls far short of a commitment to
either appreciation or even significantly greater flexibility in the renminbi
exchange rate - which the bank repeated should be kept "basically stable at a
reasonable balanced level".
But some analysts said the report supported the view that a consensus was
forming among Beijing policymakers behind a stronger, more flexible currency.
Huang Haizhou, head of Greater China research for Barclays Capital, said the
statement should be seen in the context of reports that China's July trade
surplus would hit a new record and the recent emphasis Wen Jiabao, the premier,
put on the need to address external imbalances.
The likely impact of a significant renminbi revaluation on China's trade
surplus remains a matter of fierce debate, however, with some economists saying
it could actually increase the surplus in some traded goods.
According to China's custom bureau on Thursday, the trade surplus in July
rose to $14.6bn from $14.5bn in the previous month. Total trade surplus for the
first seven months hit $76bn, up 51 per cent from the same period last
year.
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