special reports

PBoC: A Matter of Flexibility

Central bankers and finance ministers alike appear to think that China is moving in the right direction on the yuan issue…

 Zhou Xiaochuan, PBoC Governor

“I think China's policy is clear that we are gradually moving towards more flexibility than where it is.” – September 18, 2006

 Su Ning, PBoC Vice Governor

“We will continue to improve the yuan formation mechanism...and provide more financial derivatives to companies to hedge risk. We will make the yuan more reflect changes in the market situation, to be more decided by market demand and supply....to increase its flexibility.” – September 14, 2006

 Sadakazu Tanigaki, Japanese Finance Minister

“Our discussion has been focused more on the flexibility and not the value of the currency [yuan].” – September 18, 2006

 James Flaherty, Canadian Finance Minister

“The Chinese have made every effort to be forthcoming in what they do and in their view that their participation is part of what is needed but is not the whole story, certainly.” – September 18, 2006

Others want action immediately…

 Rodrigo de Rato, IMF Managing Director

“[China's] decision to change [its] exchange rate mechanism last year is the right one, but that decision has to be implemented. We believe it’s in the interest of China -- not only in exchange rates but in general -- to let [the] market determine the allocation of its resources more effectively.” – September 15, 2006

“There is a growing risk that protectionist sentiment will overwhelm good sense. If it does, all of the other risks loom larger.” – September 18, 2006

 Charles Schumer, US Senator

Referring to a bill proposed by Senator Schumer and Senator Lindsey Graham, which would put a 27.5% duty on Chinese imports, he said, “I think the votes are there…We intend to have a vote.” – September 15, 2006

US Fed: Slowdown Ahead?

Many officials have accepted that a US economic slowdown is imminent, but rising inflation may leave the Fed in a tough spot…

 Henry Paulson, U.S. Treasury Secretary

“We were able to report that US economic growth is settling into ranges more in line with our long term potential. We continue to see solid productivity growth and job growth, and we continue to make progress in bringing down our fiscal deficit. The residential housing market is cooling from record unsustainable growth rates, but growth in the US economy is being supported by other components, including wage growth, strong corporate balance sheets, and increased business capital investment.” – September 18, 2006

 John Lipsky, IMF First Deputy Managing Director

“The somewhat slower growth in consumption in the US was part of an inevitable and desirable adjustment process. What is important is that it is kept in balance and on track and does not involve a slowdown in global growth.” – September 15, 2006

 Raghuram Rajan, Chief Economist at IMF

“It is clear that even as the (US) economy slows, inflationary pressures are rising. If these become entrenched in expectations, the Fed will have to raise interest rates even higher and for longer. So the Fed may soon be on the horns of a dilemma and monetary policy will need to be skillfully managed if the economy is not to be gored.” – September 14, 2006

 Paul Jenkins, Bank of Canada Deputy Governor

“The rates of growth in the U.S. were unsustainable, so some slowing was expected ... but even with the slowing in the U.S. growth, what we are seeing is stronger growth in the rest of the world.” – September 14, 2006

ECB: Maintaining A Hawkish Stance

Central bankers continue to sound tough on inflation and optimistic on growth prospects…

 Jean-Claude Trichet, ECB President

“We are in a position of strong vigilance (on inflation). – September 18, 2006

 Jose Manuel Gonzalez-Paramo, ECB Executive Board Member

Said that “we are strongly vigilant on the risks to price stability” despite the recent easing of crude futures. – September 18, 2006

 Jurgen Stark, ECB Executive Board Member

“Growth is very robust in Europe and we continue to have the chance to grow in line with potential. Rates are low both in nominal and real terms.” – September 17, 2006

However, EU officials aren’t so quick to jump on the bandwagon…

 Joaquin Almunia, EU Economic and Monetary Affairs Commissioner

“Although economic growth in Europe is performing well in the year to date, when we look to 2007, the risks (to economic growth) rise.” – September 14, 2006