UPDATE 1-China govt economist says Q2 trends point to yuan move

* Govt economists endorse gradual moves on yuan

* Researcher says yuan move could counter inflation

* PBOC adviser says managed floating rate right for China
(Adds background, details, comments from PBOC adviser)

BEIJING, April 27 (BestGrowthStock) – China will have to resume
movement of its yuan exchange rate to manage a convergence of
strong economic growth, exports and inflationary pressure in the
second quarter, a senior government economist has said.

In an interview published on Tuesday, Ba Shusong of the State
Council Development Research Centre, which advises the Chinese
government cabinet, told the China Economic Times that policy
makers should focus more on “making the exchange rate formation
mechanism more flexible and marketised.”

Beijing has effectively pegged the yuan at about 6.83 to the
dollar since mid-2008, after three years of gradual appreciation,
in an effort to protect its exporters from the global financial
crisis.

The United States and other economies have complained that
the yuan is being held below the rate an unfettered market would
set.

Ba told the Chinese-language newspaper that the peg helped
shore up exports, but building domestic economic pressures meant
yuan reform should resume. He did not say when that would happen
but stressed the importance of the outlook in the second quarter.

“Looking at economic growth forecasts for the second quarter,
it’s expected that exports will jump sharply in the second
quarter, economic growth in the first quarter was also very
strong, and price-rise pressures are quite large,” Ba said.

“Therefore, it will be necessary to resume reforming the
renminbi exchange rate mechanism.”

The renminbi is another name for the yuan.

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

Ba does not speak for the Chinese government, which has
struck a much more careful tone about the yuan.

But the call from him and other Chinese think-tank economists
to relax the yuan peg against the dollar underscores that there
is a constituency in China for faster policy moves.

Keeping the yuan tightly tethered to the dollar had helped to
shore up Chinese exports and also to bolster the stability of the
dollar, Ba said.

He said resumed reform of the yuan exchange rate should focus
on getting the policy settings right rather than seeking to guess
the exactly appropriate value of the yuan — a nigh impossible
task, he added.

“Let the forces of supply and demand operate more and more
freely in (foreign exchange) market transactions, so that those
transactions arrive at a relatively reasonable exchange rate”, Ba
told the newspaper, which is published by the State Council
Development Research Center.

Beijing also faces rising international demands, especially
from Washington, to lift the value of the yuan, making China’s
exports relatively more expensive and opening up greater demand
in China for imported goods.

A top U.S. lawmaker said in Washington on Monday that China
needs to raise the value of the yuan by a “significant” amount or
the United States would take action. [ID:nN26213969]

Ba said China should determine yuan policy based on its own
economic interests, but should also rid itself of what he called
“long-accumulated (yuan) float phobia.”

Loosening controls on the yuan would help to control
inflation, which Ba said were increasingly difficult to juggle
with managing China’s growing pile of foreign exchange reserves.
China’s foreign (Read more about foreign investment into China) exchange reserves, the world’s largest, rose by
$47.9 billion in the first quarter to $2.4471 trillion.

Policy-makers should also “send a clear signal” to stifle
money flows that could upset the steady advance of exchange rate
reforms, he added.

China could revert to the pre-crisis mode of allowing the
yuan to strength gradually against the dollar, a central bank
adviser said in a weekend interview with a television station in
Hubei, a central Chinese province.

“I don’t oppose a gradual appreciation process in a floating
and managed manner,” said Xia Bin, one of the three academic
members with the monetary policy committee and a also senior
researcher with the State Council Development Research Centre.

He said China does not have to change the “managed floating
exchange rate” regime.

Investing Research

(Reporting by Chris Buckley and Zhou Xin; Editing by Ken
Wills)

UPDATE 1-China govt economist says Q2 trends point to yuan move