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September 24, 2009

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Home » Business » Economy

Stability remains central bank's key goal

Central bank governor Zhou Xiaochuan said yesterday that currency stability remained a key goal, though economic development, employment and other factors are taken into consideration when setting monetary policy.

China shifted to a relatively loose monetary policy this year to buttress its growth against the effects of the global financial crisis.

"China will consider inflation, economic growth, employment and the international balance of payments when trying to maintain currency stability," Zhou said.

China and other developing countries can cope with inflation of more than 2 percent, higher than the target of many developed nations, he said.

China's consumer price index, the main gauge of inflation, has dropped for seven straight months. The government is gradually loosening its control over the foreign-exchange regime, injecting more flexibility and wider market participation.

Earlier this decade, China dismissed outside calls for a one-time, double-digit appreciation of the yuan.

Instead, China has adopted a policy of long-term, gradual appreciation of the yuan, which has gained 21 percent in value since it was unpegged from the US dollar in July 2005.

The yuan has remained in a tight trading range against the dollar since the middle of last year, which is expected to help cushion the impact of a slump in exports.

Analysts said the appreciation in the yuan may resume in the second half of next year, in tandem with expansion in the Chinese economy.

"We are raising our long-term yuan forecasts, now looking for only 5.5 against the US dollar by 2015, a 20-percent appreciation from the current level," said Stephen Green, head of China research at Standard Chartered Bank.

"It equals roughly a 4-percent annual appreciation," he added.

The yuan will end this year at 6.82 against the dollar and rise to 6.68 by the end of 2010, according to a Bloomberg survey of 27 analysts. The yuan ended at 6.8262 yesterday in Shanghai.


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