MercoPress. South Atlantic News Agency

China prepared to let the Yuan appreciate to help managed ‘imported inflation’

The dollar is likely to remain weak and could push up commodity prices in the long term, according to the Beijing official press

The Chinese Yuan is ready to appreciate more rapidly against the dollar in coming months as it takes on a bigger role in Beijing’s box of monetary policy tools, a group of official Chinese newspapers reported on Friday.

The reports were published as the Yuan posted its biggest two-day rise since 2008 on speculation that Beijing could shift its currency policy soon.

The official China Securities Journal said that although the People’s Bank of China has not announced a change in its policy stance, it recently signalled a shift by slightly changing its language when it talked about future policy plans.

That suggests the central bank is ready to use the Yuan as a key tool in managing imported inflation, the paper said. Inflation that reached a three-year high of 6.5% in July.

“The dollar is likely to remain weak and would push up commodity prices in the long term, adding pressures of imported inflation for China” the paper that is operated by the official Xinhua News Agency said in a front-page editorial.

“A rise in Yuan value will help to manage these risks,” it said, adding that China is likely to rely more on the Yuan in future as a policy tool.

The Shanghai Securities News also reported in a front-page story that the exchange rate may play a leading role in China’s monetary policy controls.

Beijing has long resisted calls from the United States and other trade partners for a more rapid appreciation of its currency, which they claim has been kept artificially low to make China’s export sector more competitive in international markets.

But the weak Yuan has also exacerbated the country’s efforts to contain the rise in its trade surplus and its stockpile of foreign exchange reserves, now the world’s largest.

The People’s Daily, the mouthpiece of the ruling Communist party, said on Friday that a faster rise in the Yuan can ease price pressures in the short term and help develop China’s export sector in the long run.

“A stronger Yuan will have an impact on the Chinese economy, but it won’t deal a heavy blow to China’s export sector,” the newspaper said in a story headlined “How to view the record highs of the Yuan exchange rate.”

The International Business Daily, a newspaper published by China’s Ministry of Commerce, also cited domestic economists as saying there is growing pressure on the Yuan to rise.

It cited Ding Zhijie, a professor at the University of International Business and Economics in Beijing, as saying that the Yuan may rise not just on the dollar but against a basket of currencies.

The IMF said last month that a stronger yuan would help to make the Chinese economy more stable by aiding a rebalancing of growth toward domestic demand and away from exports and investment. One aim is to limit the risk of any slump in Chinese growth that would reverberate through the global economy.

In a report released last month the IMF the Yuan remains by 3% to 23% depending on methodology.