China should widen the yuan's daily trading transaction band and return to the exchange rate mechanism that was in place before the global financial crisis, the Business Post reported, citing a government think tank's report.
We picked this report up from China Watch Blog, which said it learnt that Beijing allowed the yuan to gradually rise 19% against the US dollar, after a 2.1% revaluation in July 2005, before freezing it near 6.83 to the dollar in July 2008 to provide stability during the worldwide credit crunch.
"In response to constantly growing pressure for renminbi (yuan) appreciation, we should consider appropriately expanding the currency''s floating band," said the State Information Centre (SIC), a research outfit under the National Development and Reform Commission, the powerful economic planning agency.
The People's Bank of China now lets the yuan rise or fall by 0.5 percentage point a day against the US dollar from a midpoint it sets each morning. In practice, the full width of the band has rarely been used.
In a report published in the official China Securities Journal, the SIC recommended that moves in the yuan should be gradual and "controllable" - the long-standing formula used by mainland policymakers.
"With expectations of yuan appreciation gradually building in the international community, it would be better to time the widening of the yuan's band before more hot money rushes into China," it said.
The think tank also said economic growth was likely to slow moderately this quarter, while inflation would accelerate. Gross domestic product growth from a year earlier would ease to 10.% form 11.9% in the first quarter, the SIC forecast.
Consumer inflation is expected to rise 4.2% in the first three months, owing to rising import prices, a low base effect from 2009, and the impact of bad weather. Private economists also expect inflation to rise and growth to slow down this quarter.
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