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February 1, 2010

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Yuan to stay stable versus greenback

THE yuan is likely to stay stable against the United States dollar as China is not likely to turn to exchange rates and shift to a tighter monetary policy in the short term, market watchers said.

The Chinese currency remained basically flat against the greenback last week and ended at 6.8270 last Friday, according to the China Foreign Exchange Trade System. The yuan closed at 6.8271 at the end of the previous week.

"The central bank is unlikely to resort to price-oriented tightening tools such as interest rate hikes or to let the yuan rise until it has exhausted its quantitative tightening options," said Liu Dongliang, a strategist at China Merchants Bank.

He added that neither the market nor the economic conditions are ripe for China to raise key interest rates.

China raised banks' reserve ratio by 0.5 percentage points to 16 percent on January 18 to curb liquidity.

Zhu Min, deputy governor of the People's Bank of China, said at the World Economic Forum in Davos on Saturday that China is trying to boost consumption but still needs time to shift from an export-oriented economy to one powered by domestic consumption.


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