Hu Xiaolian, deputy governor of the People’s Bank of China (PBoC), said on Monday that the renminbi’s peg to the US dollar has "severely challenged" China’s monetary policy and contributed to inflationary pressure, Bloomberg reported. "With China’s rapid economic growth, foreign-exchange inflows have accelerated, and increases in financial liquidity create potential of heightened inflation expectations and speculation in assets," Hu said. A statement of the remarks on the PBoC’s website added that the peg had inflationary repercussions, cautioning that it could adversely affect China’s poor. Consumer price inflation rose 2.9% year-on-year in June, a slight decrease from the 3.1% rise posted in May; the official 2010 target is 3%. Foreign exchange reserves increased sharply in the first quarter of 2010 to US$2.45 trillion as Beijing removed excess funds from the system caused by foreign currency inflows. The currency’s two-year peg to the dollar ended on June 19, and has since gained 0.7%.
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