Chinese underline stance on currency

Li Yong, speaking at an Asian Development Bank meeting in the Uzbek capital, underlined China's stance on the yuan exchange rate, saying his government wanted to keep the currency stable but continue with reforms.

"We will continue to improve the renminbi exchange rate formation mechanism and also maintain its stability at an appropriate and balanced level," Li told officials.

The renminbi is another name for the yuan.

Li's comments did not mark any departure from China's stance on basic economic settings, and they echoed remarks by Finance Minister Xie Xuren at the same meeting on Sunday.

But Li's speech, coming after the People's Bank of China lifted bank reserve ratios, underscored how Beijing is seeking to balance policy stability with efforts to counter inflationary pressures and a surge in bank credit.

The PBOC said on Sunday that it was lifting lenders' reserve requirement ratio by 50 basis points, effective May 10, its third increase of that magnitude this year. That will take the bank reserve ratio for big lenders to 17 per cent.

The move could fuel speculation that officials are preparing for an influx of capital in anticipation of a long-awaited decision to let the yuan resume its climb, stalled since July 2008.

Beijing has come under international pressure to let the currency rise after it effectively pegged it to the dollar to help the economy ride the global financial crisis.

But Li said the reserve ratio rise was "about proper liquidity management and market expectation (guidance)."

Excessive bank lending would lead to upward pressure on inflation and asset prices, and Beijing would apply instruments in a flexible manner, Li said.

"As for inflationary expectations and inflation, we are trying to manage (them) properly, particularly this year," he said.

Chinese consumer prices rose 2.4 per cent in the year to March, outstripping the 2.25 per cent rate on one-year certificates of deposit.

But Li stopped well short of any indication of a major policy shift as China pulls further out of the global financial crisis, and said the government would keep to an "appropriately easy" monetary policy.

"We will not change the whole policy, the monetary policy ...because it will cause so much disturbance for the whole economy," Li said.

"We will continue to implement the moderately easy monetary policy ... and ensure sufficient money supply and bank credit," he added.