MANILA, Sept 17 (AFP): China will come under increasing pressure to let the yuan rise further against the dollar to deflate the bubble formed by its massive current account surpluses, the chief economist of the Asian Development Bank (ADB) said today.
The Philippines-based bank raised its 2007 forecast for Beijing's current account surplus to 10.9 per cent of its gross domestic product (GDP), from 8.8 per cent of GDP.
It said continued high trade surpluses and capital inflows that took foreign exchange reserves to 1.3 trillion dollars in June have complicated monetary policy.
"This is beginning to seep into domestic liquidity," ADB chief economist Ifzal Ali told a news conference at the launch of an update to the lender's annual Asian Development Outlook forecasts.
He said "monetary policy alone will not be able to deal with this increase in liquidity and the bubble that we are witnessing in the stock market, the housing market, in the food market and in other markets."
To give the Chinese authorities "more instruments at hand to deal with this issue, perhaps it is now here that they will begin to use the exchange rate in terms of showing greater flexibility, in terms of allowing greater precision."
China has so far raised interest rates and the reserve requirements of banks, as well as cut some export subsidies, to limited effect, the ADB report said.
Pressure building for Beijing to let yuan rise
FE Team | Published: September 18, 2007 00:00:00 | Updated: February 01, 2018 00:00:00
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