* "Basket" wording reappears in China central bank report
* Warning that Europe debt problems pose systemic risk
* Says that price pressures on rise in China
(adds quotes, details)
BEIJING, May 10 China's central bank said on
Monday that it will manage the yuan "with reference to a basket
of currencies", phrasing which could signal that it is preparing
to end the yuan's de facto dollar peg.
Although the wording is not new -- it has been used since
2005 -- it had disappeared from the previous quarterly monetary
policy report by the People's Bank of China, but reappeared in
the latest version.
It is "an important language change", Morgan Stanley
economist Qing Wang said in a note to clients.
"(This), in my view, signals for the first time Chinese
authorities' intention to make a move," he said, adding that he
expected Beijing to resume appreciation this summer.
China has held the yuan steady at about 6.83 to the dollar
since mid-2008, in an attempt to cushion the economy from the
global financial crisis.
With inflation on the rise and international pressure
mounting, speculation had swirled in recent weeks that it was
only a matter of weeks before Beijing let the exchange rate
Many analysts think that international jitters in the wake
of Greece's debt crisis could stay its hand, though some say
that an environment of risk aversion may give China a window of
opportunity to reform the yuan without attracting much-feared
hot money inflows. For story, see: [ID:nTOE64905O]
The central bank addressed the Greek woes in its quarterly
report, saying that European sovereign debt problems could pose
a systemic challenge to the global economy.
Separately, Premier Wen Jiabao on Monday said that China
supported efforts by the International Monetary Fund and
euro-zone countries to help Greece overcome its troubles.
The central bank warned of dangerous consequences should
these efforts fail: "If certain developed countries are not able
to effectively cut down expenditures and increase revenues, the
possibility that the sovereign debt crisis might spread globally
cannot be ruled out."
ROAD TO RECOVERY
It singled out Europe and Japan as laggards in the global
recovery, but said that emerging markets and the United States
were well on the road back to health.
Data released on Monday supported the central bank's guarded
optimism, with 30.5 percent year-on-year growth in exports
powering China to a small, unexpected trade surplus of $1.7
billion in April. [ID:nTOE649026]
Turning to the domestic economy, the central bank said that
demand was robust but warned of increasing price pressures on
the back of excessive liquidity and rising global commodity
It said it would work to prevent housing prices from rising
too quickly, thereby fuelling inflation.
The central bank also vowed to maintain its "appropriately
loose" monetary policy, implemented since the onset of the
global financial crisis in late 2008.
In practice, China has been gradually normalising its
monetary stance after it pumped an extraordinary flood of cash
into the economy last year to lift it over the global slump.
The central bank has increased banks' reserve requirements
three times this year and has also stepped up cash withdrawals
via open market operations.
(Reporting by Lee Chyen Yee, Aileen Wang, Langi Chiang and
Simon Rabinovitch; editing by Tony Austin)