A REPORT compiled by the Institute of Urban Finance under the Industrial and Commercial Bank of China predicted the appreciation of the Chinese currency would accelerate.

The report published yesterday in the China Securities Journal stated that a recent US interest rate cut had not hindered China's prudent monetary policy for the time being, but over the long run the influx of liquidity into the country would quicken and cause the yuan to further appreciate.

The yuan broke the 7.45 mark yesterday, with the central parity rate at 7.4476 yuan against one US dollar. It was the 68th new high the yuan had recorded since the start of this year, a four percent rise accumulatively.

"We should not only focus on the foreign exchange rate fluctuation in one single day, but keep a close eye on the long-term trend," Ou Minggang, director of International Finance Research Center under China Foreign Affairs University, told Xinhua news agency.

"The US dollar has depreciated more than 40 percent compared with the euro, while the yuan has only appreciated around 10 percent since July 2005. It is possible for the yuan to further appreciate."

The influx of liquidity due to the continuous appreciation trend of the yuan and the high rate of investment return expectation in the country, would also add pressure to overheated real estate and stock markets, the report warned.

But Robert Mundell, Nobel Prize laureate in Economics, warned yesterday that an accelerating appreciation of the yuan could damage the Chinese economy.

"The Chinese exchange rate policy now will have to pay off, and inflation and other things may go wrong if it is too much," said Mundell, who was a Nobel laureate in 1999, at the on-going International Finance Forum in Beijing.

Mundell said China should learn lessons from Japan's experience. The yen's value tripled from 1985 to 1995, leading to deflation that plagued the country for 15 years.

"Five percent a year will not be a great damage to the Chinese economy, but be aware of the effect of accelerating it," said Mundell.

Ou pointed out that China has taken a series of measures to cool the overheated economy, including raising interest rates, encouraging domestic consumption and better managing the property and stock markets.

Peng Xingyun, a senior researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences said the government would step up its macro-economic management in the face of an overheated economic development.