February 9, 2011
US Fed chief critical of Chinese rate hike, calls for yuan rise
WASHINGTON: Federal Reserve Chairman Ben Bernanke on Wednesday called China's recent interest rate hike a "surprising" way to tackle inflation, and urged Beijing to instead let its currency rise.
In a rare criticism, one day after China pushed up interest rates a quarter-point for the third time in four months, Bernanke questioned Beijing's approach to dealing with overheating.
Echoing one of Washington's key complaints, he said Beijing would be better off letting the yuan appreciate by loosening its tie to the dollar.
"The renminbi is undervalued," Bernanke told a hearing of the House of Representatives budget committee, using the official term for the yuan.
"It would be both in our interest and in the Chinese interest for them to raise the value of their currency. And it would help them with their inflation problem," he said.
"One of the things that's happening, which is a little surprising in a way, is that they have an inflation problem, and the way they are addressing it is not by raising their currency value, which would reduce the demand for their exports," Bernanke said, in answer to a congressman's question.
"Rather, they are leaving it where it is and they are instead trying to reduce domestic demand through higher interest rates."
"A better strategy would be to let domestic demand be what it is and let people enjoy higher standards of living."
His comments represent a rare criticism of another central bank's policies.
Beijing's third straight rate rise in four months was aimed at quelling inflation and what some economists have described as an overheating economy growing at 10 per cent annually.
It had a slight impact on the tightly-controlled yuan, which strengthened briefly to 6.55 per dollar before falling back to 6.59. It traded at 6.83 per dollar in June.
The US has geared up pressure on China to float its currency to help address the yawning US trade deficit with what is now the world's second largest economy.
"It is a counter-productive policy, both for them and for us, and it's contributing to the still-large global imbalances, in terms of current accounts that we see around the world," Bernanke told the House hearing.
The two-way trade deficit for the first 11 months of 2010 hit $252 billion, compared to $227 billion for the whole of 2009.
Washington lawmakers have accused China of deliberately manipulating the yuan - holding its value artificially low - to promote its exports not only to the US but other countries.
In a report to Congress on Friday, the US Treasury officially cleared Beijing of the manipulation charge, but added that progress toward allowing the yuan to appreciate was "insufficient."
US Fed chief critical of Chinese rate hike, calls for yuan rise
WASHINGTON: Federal Reserve Chairman Ben Bernanke on Wednesday called China's recent interest rate hike a "surprising" way to tackle inflation, and urged Beijing to instead let its currency rise.
In a rare criticism, one day after China pushed up interest rates a quarter-point for the third time in four months, Bernanke questioned Beijing's approach to dealing with overheating.
Echoing one of Washington's key complaints, he said Beijing would be better off letting the yuan appreciate by loosening its tie to the dollar.
"The renminbi is undervalued," Bernanke told a hearing of the House of Representatives budget committee, using the official term for the yuan.
"It would be both in our interest and in the Chinese interest for them to raise the value of their currency. And it would help them with their inflation problem," he said.
"One of the things that's happening, which is a little surprising in a way, is that they have an inflation problem, and the way they are addressing it is not by raising their currency value, which would reduce the demand for their exports," Bernanke said, in answer to a congressman's question.
"Rather, they are leaving it where it is and they are instead trying to reduce domestic demand through higher interest rates."
"A better strategy would be to let domestic demand be what it is and let people enjoy higher standards of living."
His comments represent a rare criticism of another central bank's policies.
Beijing's third straight rate rise in four months was aimed at quelling inflation and what some economists have described as an overheating economy growing at 10 per cent annually.
It had a slight impact on the tightly-controlled yuan, which strengthened briefly to 6.55 per dollar before falling back to 6.59. It traded at 6.83 per dollar in June.
The US has geared up pressure on China to float its currency to help address the yawning US trade deficit with what is now the world's second largest economy.
"It is a counter-productive policy, both for them and for us, and it's contributing to the still-large global imbalances, in terms of current accounts that we see around the world," Bernanke told the House hearing.
The two-way trade deficit for the first 11 months of 2010 hit $252 billion, compared to $227 billion for the whole of 2009.
Washington lawmakers have accused China of deliberately manipulating the yuan - holding its value artificially low - to promote its exports not only to the US but other countries.
In a report to Congress on Friday, the US Treasury officially cleared Beijing of the manipulation charge, but added that progress toward allowing the yuan to appreciate was "insufficient."
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