THE government should be more cautious in adjusting interest rates this year because of the rising yuan and weakening U.S. dollar, a senior government researcher said in remarks published Friday.

Zhang Yutai, head of the Development Research Center, was quoted by the China Securities Journal as saying that China’s monetary policy should be flexible enough to handle growing uncertainties caused partly by the U.S. subprime crisis.

China raised interest rates six times in 2007 but has stood pat since December.

“In light of falling dollar interest rates and heavy pressure on the yuan to appreciate, exchange rate adjustments should be more cautious,” he was quoted as saying.

Zhang, whose think tank reports to the State Council, or Cabinet, forecast gross domestic product growth of about 10 percent for 2008, down from 11.9 percent in 2007.

The yuan punched through the symbolic barrier of 7 to the dollar Thursday for the first time since the government scrapped its peg to the U.S. currency in July 2005.

Other officials and researchers have expressed concern that higher yuan interest rates could trigger more hot money inflows into China.

Zhang said China should continue to keep a lid on excessive credit growth through increased reserve requirements and open-market operations. (SD-Agencies)