China signals it may use currency to combat inflation

A raft of comments by senior Chinese officials this week indicates that China may be prepared to allow further appreciation of the renminbi in an attempt to cool inflation, the Wall Street Journal reported. A report released by Capital Economics said that a “shift in rhetoric” among the top brass signals that policymakers may be “on the verge of allowing faster currency appreciation in response to inflation.” Hu Xiaolian, deputy governor of the People’s Bank of China (PBoC), said that further currency appreciate might “ease imported inflation pressures.” Her comments come shortly after PBoC Governor Zhou Xiaochuan said that the government was looking to draw down its massive foreign exchange reserves because it was complicating the central bank’s sterilization efforts.