Yuan rises most since end of peg as China seeks to curb prices
Tuesday, 1 January 2008
Belinda Cao
THE yuan rose the most since China ended its fixed exchange rate to the dollar in 2005 as the government signaled faster gains to cool the economy and curb inflation.
The currency climbed as much as 0.43 per cent after the official China Securities Journal cited Ba Shusong, a cabinet researcher, calling for a stronger yuan to curb prices of imported fuel and food. The central bank Dec. 21 called for the market to play a greater role in setting the exchange rate.
"The economy is overheating in at least some regions,'' Yu Yongding, the director of the World Economics and Politics Institute in Beijing and a former central bank monetary policy committee member said in an interview today. "The central bank now has more room to let the yuan rate float with more flexibility."
The yuan strengthened 0.34 per cent to 7.3192 per dollar as of 2:52 p.m. in Shanghai, according to the China Foreign Exchange Trade System.
The average daily fluctuation this week of 0.27 per cent is three times larger than last week's figure. The currency's 6.6 per cent gain versus the dollar this year is twice as much as last year's 3.3 per cent advance.
The US trade deficit with China is still set to exceed last year's record of $232.5 billion, prompting lawmakers including Senator Charles Schumer, a New York Democrat, to propose sanctions unless the yuan controls are loosened.
US Treasury Secretary Henry Paulson on Dec. 19 called for faster gains, while refraining from accusing China of manipulating its currency to make exports more competitive.
While the yuan gained against the dollar this year, it dropped against 7 of the world's 17 most-active currencies. It slid 3.0 per cent against the euro, 11 per cent versus the Canadian dollar and 13 per cent against the Brazilian real, pushing up import costs.
A 10 per cent appreciation in the yuan against the dollar would reduce the import prices of oil, soybeans and pork by about 10 per cent, Ba, a deputy director at the State Council Development and Research Center, was cited as saying by the China Securities newspaper.
The central bank said in a Dec. 21 statement it plans "forceful measures'' to limit money supply, including a more flexible exchange rate. The market will play a "much'' bigger role in setting the yuan's value, policy makers said after a quarterly monetary policy meeting.
The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, has almost tripled this year pushing prices to 46 times per-share earnings, more than double that of Hong Kong's Hang Seng Index. It gained 1.6 per cent today.
"We're seeing some big moves in the yuan,'' said David Mann, senior strategist at Standard Chartered in Hong Kong. "It makes sense for them to get more aggressive in addressing the overheating pressures in the economy.''
The currency will rise to 6.84 by the end of 2008, he said.
China's central bank this month raised rates for a sixth time this year to rein in credit growth, and lifted the reserve ratio to the highest in at least 20 years. The economy expanded 11.5 per cent in the third quarter and consumer prices rose 6.9 per cent in November from a year-earlier.
The nation's trade surplus, which surged 52 per cent in the 11 months through November to $238.1 billion, has driven foreign-exchange reserves to an all-time-high of $1.46 trillion, making it difficult for the government to slow growth and tame asset-price inflation.
Policy makers discussed widening the yuan's trading band to 0.8 per cent either side of a daily rate fixed by the central bank from 0.5 per cent now, the Hong Kong-based Ta Kung Pao newspaper reported last month, citing an unidentified person.
"Either widening the trading band or another revaluation, the direction of faster appreciation is already set,'' former monetary policy maker Yu said.
The People's Bank of China on July 21, 2005, ended a decade-long link to the dollar, letting the currency move in reference to a basket of currencies including the euro, yen, British pound and South Korea's won. It strengthened the currency by 2.1 per cent that day.
Forward contracts show traders are betting on an 8.6 per cent advance in the yuan to 6.7380 in the next 12 months.
The median estimate of 28 analysts surveyed by Bloomberg News is for a rate of 6.88 by the end of 2008.
The central bank auctioned 2.0 billion yuan ($273 million) of three-year bills today at a yield of 4.52 per cent. The yield climbed 5 basis points, or 0.05 percentage point, from 4.47 per cent on similar-maturity debt sold a week ago. The yield at a three-month bill sale remained unchanged at 3.41 per cent.
"Funds available for debt investments are plenty, keeping the yields on short-term bills stable,'' said Nie Shuguang, a fixed-income analyst at Industrial Bank Co. in Shanghai. "Many PBOC bills previously sold are maturing this month, flushing the market with money.''
The benchmark interbank seven-day repo fixing dropped 10 basis points to 2.28 per cent, compared with an average of 3.2 per cent this month. The Shanghai interbank offered rate, or Shibor, for two-week funding fell 1 basis point to 2.4 per cent.
The yield on the treasury bond due Nov. 2014 held at 4.35 per cent, according to the China Interbank Bond Market. The 4.45 per cent security traded at 99.99 per 100 yuan face amount.
Internet
THE yuan rose the most since China ended its fixed exchange rate to the dollar in 2005 as the government signaled faster gains to cool the economy and curb inflation.
The currency climbed as much as 0.43 per cent after the official China Securities Journal cited Ba Shusong, a cabinet researcher, calling for a stronger yuan to curb prices of imported fuel and food. The central bank Dec. 21 called for the market to play a greater role in setting the exchange rate.
"The economy is overheating in at least some regions,'' Yu Yongding, the director of the World Economics and Politics Institute in Beijing and a former central bank monetary policy committee member said in an interview today. "The central bank now has more room to let the yuan rate float with more flexibility."
The yuan strengthened 0.34 per cent to 7.3192 per dollar as of 2:52 p.m. in Shanghai, according to the China Foreign Exchange Trade System.
The average daily fluctuation this week of 0.27 per cent is three times larger than last week's figure. The currency's 6.6 per cent gain versus the dollar this year is twice as much as last year's 3.3 per cent advance.
The US trade deficit with China is still set to exceed last year's record of $232.5 billion, prompting lawmakers including Senator Charles Schumer, a New York Democrat, to propose sanctions unless the yuan controls are loosened.
US Treasury Secretary Henry Paulson on Dec. 19 called for faster gains, while refraining from accusing China of manipulating its currency to make exports more competitive.
While the yuan gained against the dollar this year, it dropped against 7 of the world's 17 most-active currencies. It slid 3.0 per cent against the euro, 11 per cent versus the Canadian dollar and 13 per cent against the Brazilian real, pushing up import costs.
A 10 per cent appreciation in the yuan against the dollar would reduce the import prices of oil, soybeans and pork by about 10 per cent, Ba, a deputy director at the State Council Development and Research Center, was cited as saying by the China Securities newspaper.
The central bank said in a Dec. 21 statement it plans "forceful measures'' to limit money supply, including a more flexible exchange rate. The market will play a "much'' bigger role in setting the yuan's value, policy makers said after a quarterly monetary policy meeting.
The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, has almost tripled this year pushing prices to 46 times per-share earnings, more than double that of Hong Kong's Hang Seng Index. It gained 1.6 per cent today.
"We're seeing some big moves in the yuan,'' said David Mann, senior strategist at Standard Chartered in Hong Kong. "It makes sense for them to get more aggressive in addressing the overheating pressures in the economy.''
The currency will rise to 6.84 by the end of 2008, he said.
China's central bank this month raised rates for a sixth time this year to rein in credit growth, and lifted the reserve ratio to the highest in at least 20 years. The economy expanded 11.5 per cent in the third quarter and consumer prices rose 6.9 per cent in November from a year-earlier.
The nation's trade surplus, which surged 52 per cent in the 11 months through November to $238.1 billion, has driven foreign-exchange reserves to an all-time-high of $1.46 trillion, making it difficult for the government to slow growth and tame asset-price inflation.
Policy makers discussed widening the yuan's trading band to 0.8 per cent either side of a daily rate fixed by the central bank from 0.5 per cent now, the Hong Kong-based Ta Kung Pao newspaper reported last month, citing an unidentified person.
"Either widening the trading band or another revaluation, the direction of faster appreciation is already set,'' former monetary policy maker Yu said.
The People's Bank of China on July 21, 2005, ended a decade-long link to the dollar, letting the currency move in reference to a basket of currencies including the euro, yen, British pound and South Korea's won. It strengthened the currency by 2.1 per cent that day.
Forward contracts show traders are betting on an 8.6 per cent advance in the yuan to 6.7380 in the next 12 months.
The median estimate of 28 analysts surveyed by Bloomberg News is for a rate of 6.88 by the end of 2008.
The central bank auctioned 2.0 billion yuan ($273 million) of three-year bills today at a yield of 4.52 per cent. The yield climbed 5 basis points, or 0.05 percentage point, from 4.47 per cent on similar-maturity debt sold a week ago. The yield at a three-month bill sale remained unchanged at 3.41 per cent.
"Funds available for debt investments are plenty, keeping the yields on short-term bills stable,'' said Nie Shuguang, a fixed-income analyst at Industrial Bank Co. in Shanghai. "Many PBOC bills previously sold are maturing this month, flushing the market with money.''
The benchmark interbank seven-day repo fixing dropped 10 basis points to 2.28 per cent, compared with an average of 3.2 per cent this month. The Shanghai interbank offered rate, or Shibor, for two-week funding fell 1 basis point to 2.4 per cent.
The yield on the treasury bond due Nov. 2014 held at 4.35 per cent, according to the China Interbank Bond Market. The 4.45 per cent security traded at 99.99 per 100 yuan face amount.
Internet