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IMF To China: Ease Up

Head of IMF says country should relax exchange rate controls to cool growth.

BEIJING (AP) - China should ease exchange rate controls to give regulators more power to cool off an investment boom and shift the basis of its growth to domestic consumer demand, the head of the International Monetary Fund said Friday.

After meetings with China's premier and the central bank and finance ministry chiefs, IMF Managing Director Rodrigo de Rato said they agreed China had to reduce reliance on investment.

De Rato said allowing a more market-driven exchange rate would give financial authorities more flexibility in setting interest rates to curb investment. He said that would be more effective than the regulatory controls that Beijing has used so far.

''We believe a more flexible exchange rate will allow fuller play of monetary policy and will help this rebalancing of demand,'' he said at a news conference.

China has allowed its currency to rise gradually against the dollar since ending a direct link to the U.S. currency 18 months ago. The yuan has risen by about 6 percent against the dollar since then.

Also Friday, Premier Wen Jiabao said the government wants to maintain rapid but stable economic growth in 2007 while preventing an upsurge in bank loans and investment.

''Sharp fluctuations must be prevented,'' Wen said at a cabinet meeting, according to the official Xinhua News Agency.

The government reported Thursday that the booming economy grew by 10.7 percent last year _ its highest rate since 1995 _ driven by a surge in exports and investment.

Wen affirmed the government's determination to ''prevent a rebound of investment and excessive loans,'' Xinhua reported.

The government raised interest rates twice last year and imposed curbs on real estate, auto manufacturing and other industries to slow a surge in investment that it worries could push up inflation or cause a debt crisis if unnecessary projects fail.

Inflation is already ticking up, with the government reporting Thursday that consumer prices rose 2.8 percent last month compared with a year ago, up from a 1.9 percent rate in November.

The government also is trying to cope with strains from a soaring trade surplus and swollen foreign exchange reserves.

De Rato said he saw no risk of a sharp increase in prices this year.

However, he said ''the high levels of credit and high levels of investment could cause a risk in China.''

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