China's rapid FX reserves rise creates policy difficulties - SAFE

BEIJING, June 12 Wed Jun 11, 2014 10:42pm EDT

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BEIJING, June 12 (Reuters) - China's rapid accumulation of foreign-currency reserves poses difficulties for steering economic policy, officials with the nation's foreign exchange regulator said on Thursday.

China will keep its foreign exchange reserves at a reasonable level, officials of the State Administration of Foreign Exchange (SAFE) said in a webcast.

China's foreign exchange reserves, the world's largest, grew by $130 billion in the first quarter, to a record $3.95 trillion.

Large foreign currency purchases by China's central bank, which regularly intervenes to cap rises in the yuan, amount to creation of base money and can fuel inflation unless the central bank soaks up the excess yuan injected into the system.

(Reporting by China economics team; Editing by Richard Borsuk)

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