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China says too soon to loosen yuan's peg
Updated: 2004-11-21 08:26

People's Bank of China governor Zhou Xiaochuan said it was too early to talk about a loosening of the yuan's peg to the dollar.

People's Bank of China governor Zhou Xiaochuan, seen here March 2004, said it was too early to talk about a loosening of the yuan's peg to the dollar. [AFP/file]
China's currency has been pegged at about 8.3 yuan to the dollar for the past 10 years, and Group of Seven industrialized countries have been pressing China to move to a more flexible exchange rate regime.

"It is still not the stage to talk about a specific technical arrangement," Zhou told journalists at the G20 finance ministers and central bank governors meeting in Berlin.

China has conceded that there is a need to revalue the yuan but officials say this will take time.

"Now China is in the preparation stage," Zhou said.

The United States has been calling for the yuan's value to be set by the market or at least to vary within a large band.

Washington has sometimes criticised China's fixed-exchange rate peg to the dollar, seeing a yuan appreciation as one possible solution to the huge US current account deficit.

But the Chinese central bank has repeatedly said it would maintain the basic stability of the yuan's exchange rate around a "rational and balanced level."

Zhou said earlier Saturday that the Chinese authorities will be closely monitoring economic data over the months ahead.

"Up to now for China the current account is basically balanced, so we don't have a very large trade surplus," he said.

Zhou said the US current account and budget deficits are just one factor in the dollar's recent slide.

"There are so many reasons for this -- the twin deficits and the low savings rate, but (US Federal Reserve chairman) Alan Greenspan already said that," he said.

Zhou said the central bank would monitor the response of commercial banks to its recent interest rate increase to see if further policy changes are needed.

"We are going to observe how the commercial banks respond to the new policy and then we can see whether we need to go further to consider interest rate policy or not," he said.

"We just adjusted benchmark savings rates and lending rates and on the other hand we have agreed steps to liberalise interest rates, so I think the commercial banks can respond according to the market situation."

The Chinese central bank raised interest rates for the first time in nine years on October 28, hiking its benchmark one-year lending rate by 0.27 percentage points to 5.58 percent.

The rate hike was part of a series of administrative steps aimed at cooling the overheated economy.

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