US rate hike takes pressure off Chinese yuan - central bank governor
Friday, July 9, 2004 1:50:49 AM
SHANGHAI (AFX-ASIA) - Last week's US interest rate hike has taken some of the heat off the yuan, the governor of the Chinese central bank said, suggesting little inclination to cave in to international pressure and revalue the currency in the short-term
The China Securities Journal quoted Zhou Xiaochuan, chief of the People's Bank of China, as saying that last week's 25 basis point hike in the Fed funds rate, the first in four years, "will help to ease the appreciation pressure on China's yuan." "It is good for China," he said
The yuan is pegged at around 8.27 to the dollar
China has spent over a year fighting the destabilizing impact of billions of dollars of speculative inflows, driven in part by a gaping spread between US and Chinese interest rates, which have been spilling into the banking system, fuelling inflation and throwing doubt over the government's ability to maintain the peg to the dollar at its current level. Although the government has said that a slew of measures taken to cool the economy in recent weeks are working, analysts have said that China should use the upturn in the US rate cycle as an opportunity to bring its own rates up, arguing that negative real interest rates are still fuelling bubbles in select parts of the economy. The Chinese one year deposit rate is 1.98 pct and the lending rate is 5.31 pct. US short term interest rates now stand at 1.25 pct
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