Center

Forex reserves exceed US$900b

(Reuters)
Updated: 2006-06-13 14:35

China's foreign exchange reserves, the world's largest, have risen above US$900 billion as a result of the nation's growing trade surplus, a senior government official said on Monday.

The official said China's foreign exchange reserves had hit a new high following several consecutive years of trade surpluses.

"China's reserves have already exceeded US$900 billion," he told an off-the-record forum. "Imbalances in international payments have triggered some new problems which deserve our attention."

The authorities needed to fine-tune policy to tighten liquidity, the official said.

"It is necessary to take some targeted fine-tuning measures under the condition that monetary and fiscal policy be kept basically stable. Currently the priority is to control liquidity," he said.

Many analysts expect China to raise bank reserve requirements soon to help curb excess liquidity that has fuelled a destabilising credit boom. Some think the central bank may resort to raising interest rates for a second time this year.

China's foreign exchange reserves rose to a record $875.1 billion by the end of March on the back of a surge in its trade surplus and an increase in foreign direct investment.

Earlier on Monday, China said it had raked in a record monthly trade surplus of US$13.0 billion in May.

The Chinese economy had continued to expand at a fast clip and could easily grow by over 9 percent in 2006, the official said.

Excessive growth in both fixed-asset investment and credit and the country's widening trade surplus remained key problems for the economy, he said.

Fixed-asset investment for the first 5 months was likely to have grown around 30 percent on the year, he said.

"Indeed the excessive growth and trade imbalances will bring new challenges for the overall economy if we don't pay enough attention and allow them to evolve," he said.

The official said consumer price inflation in China was likely to remain subdued in the near-term and its ability to rise further would depend to a large extent on government moves to liberalise utility prices.

China reported on Monday that its consumer price index had risen 1.4 percent on the year in May, slightly higher than the 1.2 percent seen in April.