China to let yuan rise faster to ease prices

China is expected to let the yuan rise at a faster pace as a way to help curb inflation, the China Securities Journal said on Tuesday.

Referring to remarks over the weekend by Zhou Xiaochuan, China's central bank governor, who said the yuan will be used to curb inflation, the newspaper asserted that the currency is set to pull more weight as a monetary policy tool.

"These remarks show the currency tool is given a new role under the current macro-economic situation," the newspaper said.

"To reach the government's inflation target, gains in the yuan can be an alternative to increases in interest rates and the reserve requirement ratio," it added.

To tame 32-month-high inflation, China has raised interest rates four times for a total of 100 basis points and the reserve requirement ratio seven times since October, when it began making a priority of fighting inflation.

The latest increase in the reserve requirement ratio was announced on Sunday, when the central bank lifted it by 50 basis points to a record high of 20.5 percent.

The move did not surprise investors since it came just a day after Zhou said China will further tighten policy for some time because inflation is still too high for the government's comfort, and that the yuan will be among tools used to tame price pressures.

But the yuan's performance against a swathe of currencies has been mixed so far, obscuring its effectiveness as an anti-inflation tool.

Against the dollar, the yuan has been setting a series of record highs, with the latest struck on Monday. That has helped it to climb 4.6 percent since its official depegging from the dollar in June 2010.

Against a trade-weighted basket of currencies however, the yuan has fared less well. It fell 0.7 percent in March and has lost 4.3 percent since the June 2010 depeg.

China's consumer price inflation in March sped to 5.4 percent from a year earlier, the fastest since July 2008 and topping market forecasts for a 5.2 percent rise.