China’s foreign exchange reserves, already the world’s biggest, soared again in the second quarter, adding to inflationary pressure and highlighting the risks in Beijing’s policy of holding down the value of its currency.
Reserves are a key indicator of central bank intervention in the currency market because they reflect how much foreign exchange it has purchased in order to stabilise the renminbi.
After jumping $197bn in the first quarter, reserves were up another $153bn in the second quarter.
That influx of cash compounds China’s inflation troubles. Consumer prices were up 6.4 per cent in the year to June, the highest in three years. Although many analysts expect inflation to slow over the remainder of the year, the accumulation of reserves lays the groundwork for a continuation of fast money growth and so will limit the scope for any easing of price pressures.
“The current intervention of the People’s Bank of China has been piling up more and more foreign exchange reserves. This is not sustainable,” said Li-Gang Liu, head of China economics at ANZ Bank.
A mild rebound in money growth in June illustrated that China remains flush with cash, even after a succession of interest rate increases and other moves by the central bank to restrict bank lending. The broad M2 measure of money growth was up 15.9 per cent year on year in June, accelerating from 15.1 per cent a month earlier.
China raised interest rates last week for the fifth time in eight months. Economists are now debating whether Beijing will raise rates again this year to damp down inflation or desist from further tightening amid signs of a growth slowdown.
Wen Jiabao, the premier, said on Tuesday: “We must slow price increase, but we also must avoid causing big fluctuations in growth,” he said after meeting officials and business leaders.
A stronger renminbi also has a crucial role in easing inflation, as it would reduce the cost of imports and restrain money growth by adding less to foreign exchange reserves.
Nevertheless, despite repeated pledges by China to make its exchange rate more flexible, the renminbi has climbed just 2 per cent against the dollar this year and has actually fallen against a basket of currencies of its trading partners. That sluggish performance and concerns about China’s slowdown have led traders to scale back bets on renminbi appreciation.
China’s total foreign exchange reserves stand at $3,197bn, equivalent to about 50 per cent of gross domestic product and almost three times more than any other nation’s.
Nearly $47bn of the $153bn second-quarter increase came from China’s trade surplus, with investment inflows and interest earnings accounting for much of the rest.
2011-07-13 15:38 编辑：典典
The US Congress moved closer to punishing China for allegedly manipulating its currency, as a key committee of the House of Representatives voted to advance legislation that could