Yuan drops to monthly low
THE yuan fell to a monthly low yesterday on speculation that China prefers to see more two-way fluctuation in the yuan rather than have the Chinese currency appreciate only.
The People's Bank of China, the central bank, set the reference central parity rate of the yuan at 6.6912 against the US dollar yesterday, the lowest level since September 30. The yuan closed at 6.6806, down 0.16 percent in Shanghai yesterday, according to the China Foreign Exchange Trade System.
"The slump in the rate is a bit surprising even given the dollar's strength overnight," said Jinny Yan, a Standard Chartered Bank economist in Shanghai. "The Chinese government may want the appreciation to take some rest since the Group of 20 meeting is over. We should prepare for more two-way volatility in the coming weeks."
Finance ministers and central bankers from the G20 nations said last week that they would refrain from "competitive devaluations" and allow markets to fix exchange rates.
The yuan had been steadily climbing in the past weeks amid a background of increasing calls, especially from the United States, for the currency to rise even faster.
The yuan has gained about 2.8 percent since June 19, when the PBOC pledged to pursue a more flexible foreign exchange rate and to end a two-year de facto peg to the US dollar. An appreciating yuan can help China fight inflation by making imports cheaper. Economists expect the yuan to rise in the long run.
China last week unexpectedly raised its interest rates for the first time in nearly three years.
The hike eased the need for the yuan to rise even more as a tool to curb inflation, which rose to a nearly two-year high of 3.6 percent in September.
The yuan has gained more than 24 percent since July 2005 when the Chinese currency's peg to the US dollar was cut. The yuan's daily trading band is 0.5 percent now.
The People's Bank of China, the central bank, set the reference central parity rate of the yuan at 6.6912 against the US dollar yesterday, the lowest level since September 30. The yuan closed at 6.6806, down 0.16 percent in Shanghai yesterday, according to the China Foreign Exchange Trade System.
"The slump in the rate is a bit surprising even given the dollar's strength overnight," said Jinny Yan, a Standard Chartered Bank economist in Shanghai. "The Chinese government may want the appreciation to take some rest since the Group of 20 meeting is over. We should prepare for more two-way volatility in the coming weeks."
Finance ministers and central bankers from the G20 nations said last week that they would refrain from "competitive devaluations" and allow markets to fix exchange rates.
The yuan had been steadily climbing in the past weeks amid a background of increasing calls, especially from the United States, for the currency to rise even faster.
The yuan has gained about 2.8 percent since June 19, when the PBOC pledged to pursue a more flexible foreign exchange rate and to end a two-year de facto peg to the US dollar. An appreciating yuan can help China fight inflation by making imports cheaper. Economists expect the yuan to rise in the long run.
China last week unexpectedly raised its interest rates for the first time in nearly three years.
The hike eased the need for the yuan to rise even more as a tool to curb inflation, which rose to a nearly two-year high of 3.6 percent in September.
The yuan has gained more than 24 percent since July 2005 when the Chinese currency's peg to the US dollar was cut. The yuan's daily trading band is 0.5 percent now.
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