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Central bank adviser backs yuan rate policy
Updated: 2005-07-05 11:12

 A Chinese central bank adviser has said that monetary policy should stay stable in the near future and that China's economic growth and inflation were optimally matched, the Financial News said on Tuesday.

"I think although the economic situation may have undergone or is undergoing important changes, monetary policy should stay stable in the near term," said Yu Yongding, a researcher who is also a member of the central bank's monetary policy committee.

Further credit tightening was unnecessary and probably harmful given that consumer price inflation had dipped below two percent, he said.

In the first half of this year, economic growth and inflation had been optimally matched, he said.

China's central bank reiterated its intention to keep monetary policy and its yuan currency stable in a statement on Friday, released after a quarterly meeting by its monetary policy committee.

The People's Bank of China also said it would seek to keep prices and economic growth basically stable and offered no hint of the currency revaluation that some of China's trading partners have been seeking.

Yu also gave no hint on the timetable of yuan reform. Indeed, the uncertainty was a good thing, he said.

Uncertainty over any move on the yuan helped curb the volume of speculative money coming into the country as a bet on revaluation and thereby created a better external environment for currency reforms.

Investors have been speculating that China may start pegging its yuan to a basket of currencies, rather than just the dollar, or widen its trading band as early as this year as part of the country's long stated plan to gradually liberalise its currency.

Such a move, analysts say, would allow the currency to appreciate under current economic conditions.

The yuan is currently pegged at about 8.28 per dollar.

China has made clear that the timing of a yuan move would depend on domestic needs, and that it would not succumb to foreign pressure.

Critics say the yuan is undervalued and is giving Chinese exporters an unfair advantage in global markets.

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