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China to continue current monetary policy (2)

(People's Daily)

10:50, October 28, 2011

When asked how to deal with concerns over inflation, Zhou said that they are paying close attention to inflation but will not make the issue take a back seat to economic growth. Regarding ways to ease inflation, he believes that stagflation must be taken into consideration and that it is impossible for any policy to immediately alleviate inflation. In addition, the domestic and international situations must be taken into consideration too, and currently, many unstable and uncertain factors still exist.

While talking about the RMB exchange rate, Zhou said that, according to the exchange rate policies of China, China will strengthen the flexibility of the RMB within the framework of a controllable floating exchange rate system for a long time.

The exchange rate is decided by two factors. First, it is decided by the purchase behaviors of market participators. In China, the intervention from the central bank is also included and both decide the exchange rate trend. Second, the exchange rate is closely connected with the international balance of payments. The balances of trade, the current account and the capital account are all very important.

The central bank has always taken the statistics of the international balance of payments into consideration. Only on very special occasions — for example, when Fannie Mae and Freddie Mac were on a downward spiral or when Lehman Brothers was going bankrupt — did they assume that the international situation is requiring China to adjust its exchange rate policies. Except for these occasions, the international situation reflects the foreign exchange market.

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