China Premier: FX Reserves may Stoke Inflation

China’s war chest of foreign currency reserves has become a headache as its continued rise could stoke inflation in the long term, Premier Li Keqiang said in remarks seen on Sunday, pledging to reduce the country’s trade surplus.

China’s foreign exchange reserves, the world’s largest, grew by $130 billion in the first quarter, to a record $3.95 trillion.  The central bank has pledged to keep foreign exchange reserves at reasonable levels, partly by reducing its intervention in the currency market.

“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 quoted Li as saying during a visit to Kenya.

CNBC

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