By Xin Zhiming (China Daily)
Updated: 2007-11-20 08:03

China may make its exchange rate more flexible and, if necessary, consider widening the yuan's trading band, central bank governor Zhou Xiaochuan has said.

But any change in the yuan's floating band will depend on the global economic situation and it's not the only tool the country would use to make its currency more flexible, Zhou was quoted as having said on Sunday.

Attending the Group of 20 (G20) meeting in Cape Town, South Africa, he said: "Actually I think the floating band is quite all right, but if need be we can consider expanding it."

Finance ministers and central bank governors of leading industrialized and emerging economies, too, attended the meeting.

Some Western leaders have been pressuring China to revalue its currency at a faster pace, blaming the exchange rate for global economic imbalance and mounting trade deficits they suffer from.

But China has adopted a gradual approach to the yuan's adjustment. In fact, many economists have warned the country's economy would suffer irreparable damage if the yuan is revalued at a faster pace, and have cited the example of Japan in the 1980s to illustrate their point.

The value of the Japanese yen tripled against the dollar during 1985-95, its highest in history, and it caused "terrible" damage to Japan's economy, Nobel Economics Laureate Robert Mundell said.

"That's something to be worried about and (should be) avoided," the Columbia University economics professor told China Daily in an earlier interview.

China widened the yuan's daily trading band against the US dollar from plus or minus 0.3 percent to 0.5 percent in May. The yuan's central parity rate was 7.43 against 1 dollar Monday, up about 9 percent since being de-pegged from the greenback on July 21, 2005.

Inflation

The consumer price index (CPI), the general gauge of inflation, will be around 4.5 percent this year and will be relatively stable next year, the central bank governor said.

Inflation has risen slightly as the country tries to reform its pricing regime to eradicate price distortions in sectors such as energy and transport.

Asian Development Bank's senior economist Zhuang Jian said inflation won't drop significantly next year. Even if the food prices ease, the authorities may seize the chance to adjust prices of energy and other resources, which have traditionally been too low to reflect supply-demand relations.

Inflation may stabilize around 4 percent next year, he said. The country's CPI growth surged to 6.5 percent in August, a decade high, and reached the same level again in October after easing to 6.2 percent in September.

Zhou said he is satisfied with the existing level of interest rate but will continue monitoring economic development to see if any further move needs to be taken.