A blog on Chinese economy & society

China to widen RMB’s trading band

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According to the Hong Kong Economic Times, a Chinese government think tank made a rare appearance yesterday during the press meeting held by the Foreign Ministry, focusing naturally on China’s exchange rate policy. A top policy adviser commented that:

As to whether to enlarge the trading band, or to revert to the pre-crisis policy of small-step appreciation, both are possible.

As I said before, I would bet on a widening of the trading band, as China’s trade deficit rules out the need for an immediate appreciation. The strength of the dollar of late has also muted European or Japanese complain on RMB. So basically lip service and no change at all unless, of course, inflation runs amok. China is due to release CPI data later this week, and consensus seem to be around 2.3%, well within the 3% government target. So inflation fear should be held off a bit longer.

As for the time-frame of policy change, the adviser hinted that it depends on the pace of recovery in the US. My take is that it’s likely to be part of a concerted tightening effort among the central banks, i.e. widening trading band plus possible interest rate hike. The upcoming Sino-American economic forum in May should be closely watched for any policy change.


Written by Cindy Luk

April 6, 2010 at 11:58 pm

Posted in China, Macro

Tagged with , , , , ,

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