Bloomberg News

Yuan Gains for Sixth Quarter as China Seeks to Stem Inflation

June 30, 2011

June 30 (Bloomberg) -- China’s yuan rose for a sixth straight quarter on speculation inflation is accelerating, spurring speculation policy makers will allow more appreciation to stem price gains.

Inflation may reach 5.3 percent for the first half and 4.9 percent for the year, the China Securities Journal reported today, citing estimates by the State Information Center. Li Daokui, an adviser to the central bank, said yesterday price increases will be relatively high in June due to the rise in the cost of agricultural products and pork. The People’s Bank of China set the yuan’s reference rate 1.3 percent stronger this quarter.

“The yuan strengthened on the back of China’s efforts to fight inflation in the first half,” said Edmond Law, deputy head of foreign-exchange at BWC Capital Markets in Hong Kong. “A stronger currency allows the country to tame imported inflation as commodity and food prices have been high.”

The yuan strengthened 1.3 percent this quarter and was little changed today at 6.4640 per dollar as of the close at 4:30 p.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency touched 6.4605 on June 23, the highest level since the country unified official and market exchange rates at the end of 1993.

The People’s Bank of China raised the reference rate to 6.4716 per dollar today. The yuan is allowed to move 0.5 percent either side of the fixing.

Offshore Market

Twelve-month non-deliverable forwards gained 0.55 percent this quarter and 0.13 percent today to 6.3834 per dollar at 4:36 p.m. in Hong Kong, a 1.3 percent premium to the spot rate, according to data compiled by Bloomberg. In Hong Kong’s offshore market, the yuan rose 1.3 percent this quarter to 6.4653.

The central bank may raise interest rates next month as inflation may accelerate to 6.5 percent in June, Li Huiyong and Meng Xiangjuan, analysts at Shenyin & Wanguo Securities Co., wrote in a research report today.

The People’s Bank of China has raised borrowing costs four times since September to curb price pressures. Premier Wen Jiabao said this week China can keep full-year inflation below 5 percent. Consumer prices rose 5.5 percent in May.

--Editors: Simon Harvey, Sandy Hendry

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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