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Pace of yuan rise a challenge
By Zhang Fengming |
December 21, 2010, Tuesday
|
Print Edition
Print Edition
CHINA may allow a faster appreciation of the yuan in 2011 to battle inflation and managing the pace of the rise will be one of the major challenges facing policy makers next year, economists said yesterday.
"While mindful of the appeals of foreign trading partners, based on China's economic realities, the central government is likely to stick with its gradual approach toward a yuan appreciation," said Liao Qun, chief economist of CITIC Bank International Ltd.
However, the United States and other Western countries want the yuan to appreciate by a bigger margin, and the US's new round of quantitative easing, or QE2, is generating new pressure to force China to comply, he added.
Liao said he expects the pace of yuan appreciation to be faster than the 3-5 percent previously forecast and it is likely to gain 4-6 percent against the dollar in 2011.
Stephen Green, head of research at Standard Chartered Bank China, also said he expected a 6 percent appreciation of the yuan next year.
"The real interest rate is too low," Green said. "A faster appreciation of the yuan could help counter the rise of inflation."
The Consumer Price Index, the main gauge of inflation, rose 5.1 percent year on year in November, a 28-month high.
Food prices jumped 11.7 percent last month - the most since July 2008.
Chinese consumers are feeling the biggest pressure of rising costs of living in a decade, a central bank survey showed earlier this month. A more valuable yuan can make imports cheaper, and curbing inflation is one of the priorities of the Chinese government in 2011.
"We expect domestic pressure to prompt a faster appreciation of the yuan. Yuan forwards are currently the cheapest way to access the local currency," said Deutsche Bank in a report yesterday. "We suggest buying yuan versus a basket of US dollars, euros and yen."
The yuan has risen more than 24 percent since July 2005 when it cut its peg to the US dollar. The yuan's daily trade band sits at 0.5 percent now.
"While mindful of the appeals of foreign trading partners, based on China's economic realities, the central government is likely to stick with its gradual approach toward a yuan appreciation," said Liao Qun, chief economist of CITIC Bank International Ltd.
However, the United States and other Western countries want the yuan to appreciate by a bigger margin, and the US's new round of quantitative easing, or QE2, is generating new pressure to force China to comply, he added.
Liao said he expects the pace of yuan appreciation to be faster than the 3-5 percent previously forecast and it is likely to gain 4-6 percent against the dollar in 2011.
Stephen Green, head of research at Standard Chartered Bank China, also said he expected a 6 percent appreciation of the yuan next year.
"The real interest rate is too low," Green said. "A faster appreciation of the yuan could help counter the rise of inflation."
The Consumer Price Index, the main gauge of inflation, rose 5.1 percent year on year in November, a 28-month high.
Food prices jumped 11.7 percent last month - the most since July 2008.
Chinese consumers are feeling the biggest pressure of rising costs of living in a decade, a central bank survey showed earlier this month. A more valuable yuan can make imports cheaper, and curbing inflation is one of the priorities of the Chinese government in 2011.
"We expect domestic pressure to prompt a faster appreciation of the yuan. Yuan forwards are currently the cheapest way to access the local currency," said Deutsche Bank in a report yesterday. "We suggest buying yuan versus a basket of US dollars, euros and yen."
The yuan has risen more than 24 percent since July 2005 when it cut its peg to the US dollar. The yuan's daily trade band sits at 0.5 percent now.
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