China's foreign exchange reserves, the world's
largest, grew by $130 billion in the first quarter, to a record
The central bank has pledged to keep foreign exchange reserves
at reasonable levels, partly by reducing its intervention in the
"Frankly speaking, foreign exchange reserves have become a big
burden for us, because such reserves translate into the base
money, which could affect inflation," Phoenix New Media Ltd
quoted Li as saying during a visit to Kenya.
"From China's perspective, macroeconomic controls could face
tremendous pressures if the overall trade is imbalanced."
China will take steps to reduce its trade surpluses with the
rest of the world, including Kenya, Li was quoted as saying.
Large foreign currency purchases by China's central bank, which
regularly intervenes to cap yuan rises, amount to creation of
base money and can fuel inflation unless the central bank soaks
up the excess yuan injected into the system.
In recent weeks, the central bank has been suspected of
engineering a fall in the yuan in a bid to punish speculators
betting on yuan rises.
Yi Gang, vice central bank governor, said in November that the
cost of holding the reserves would surpass earnings from them
when reserves exceed a certain level.
China's inflation has been benign in recent months as its
economy slows, but analysts point to long-term pressures as the
government loosens its grip on utility and resources prices.
(Reporting by Kevin Yao; Editing by Clarence Fernandez)
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