PBoC governor: China must cut forex reserves

Zhou Xiaochuan, governor of the People’s Bank of China, said that the country needs to reduce its foreign exchange reserves because it is hampering  efforts by the central bank to “sterilize” hot money inflows, Bloomberg reported. Zhou, speaking at Tsinghua University, said that the US$3 trillion reserve also needs to be better managed and more diversified. The reserves, which grew by US$197 billion in the first quarter of 2010, contribute to inflationary pressure. “The rapid increase in reserves may have led to excessive liquidty and significant sterilization pressure. If the government doesn’t strike the right policies, the build-up could cause big risks,” Zhou said. Analysts say that the reserve fund was used to pay for the stimulus lending boom of 2009, causing a liquidity glut that is driving up inflation, which reached 5.4% in March.