Friday, December 17, 2010

China faces exchange rate dilemma - chief

SHANGHAI: China faces a dilemma in managing its currency, since appreciation would benefit importers but anger exporters, central bank chief Zhou Xiaochuan said in comments reported on Friday, Dec 17.

As with all policy decisions, including whether to raise interest rates, the trick for the People's Bank of China was to try to strike a balance between competing interests, he was cited as saying by the Shanghai Securities News, an official newspaper.

"Most central banks face a dilemma in their monetary policy, hoping to use limited tools to satisfy all of the demands from groups with different interests," Zhou was quoted as saying.

"Take the exchange rate. When the exchange rate rises, exporters will perhaps complain. Importers might say it is good. They will be able to sell things for a bit less and so expand their market. There will always be a trade-off," he said.

Zhou gave no indication of what the balance might be on currency policy, though recent history points to a gradual rise in the yuan against the dollar as a middle course.

Since ending a de facto peg in June, the central bank has let the yuan climb just 2.4 percent against the dollar. Investors expect the pace to be even slower next year, with offshore forwards pricing in just 2.2 percent appreciation over the next 12 months.

The central bank is believed to be a relatively strong roponent of yuan appreciation in Chinese policy making circles, while the Commerce Ministry is seen as a major opponent because of its focus on supporting exporters. - Reuters

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