BIZCHINA / Market Reactions
Yuan opens trading day at post-revaluation high
(Shanghai Daily)
Updated: 2007-03-20 16:07
The yuan climbed to a new high against the US dollar in intraday trading
Monday amid optimism that the currency will strengthen further following
the central bank's weekend interest rate hikes.
The People's Bank of China set the yuan's central parity rate at 7.7351
against the greenback yesterday, the highest since the dollar link was
scrapped in July 2005.
The yuan closed at 7.736 after touching an intraday high of 7.733.
It ended trading on Friday at 7.736.
"Saturday's interest rate hikes spurred the uptick in the currency," said
Jin Di, a Shanghai-based trader at the Bank of China. "The yuan is due
for long-term upward momentum as the central bank carries out its
commitment for gradual appreciation."
The national currency has gained 6.6 percent since China ended the peg of
8.28 yuan to the greenback and weighed it against a basket of currencies.
The central bank on Saturday raised the benchmark one-year lending rate
by 0.27 percentage points to 6.39 percent and lifted the one-year deposit
rate by the same amount to 2.79 percent.
The weekend action was the central bank's third rate increase since last
year as part of its effort to rein in liquidity, keep consumer prices
stable and apply the brakes to the sizzling economy.
"The current tightening episode may be just another interim step along
China's long march to get its interest rate and the currency to the right
levels," said Liang Hong, an economist at the Global Investment Research
Division of Goldman Sachs.
Zhou Xiaochuan, governor of the People's Bank of China, said earlier this
month during the National People's Congress that the Chinese government
may consider widening the yuan's trading band.
The PBOC allows a daily 0.3 percent trading fluctuation on either side of
the parity rate, which the central bank calculates based on average
weighted quotes from more than 10 commercial banks that serve as market
makers to provide advice on the currency's expected movement.
Analysts believe that increasing the flexibility of the exchange rate
mechanism will help moderates China's huge trade surplus, which swelled
to 177.5 billion US dollars last year from 102 billion US dollars in 2005
and is attracting complaints from some Western countries.
(For more biz stories, please visit Industry Updates)
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