Bloomberg News

Yuan Strengthens Most in Two Weeks on Record Reference Rate

September 28, 2011

Sept. 28 (Bloomberg) -- China’s yuan advanced the most in almost two weeks after the central bank set a record reference rate, fueling speculation policy makers will favor currency gains as a means of taming inflation.

The People Bank’s of China set its daily reference rate 0.21 percent stronger at 6.3623 per dollar, the strongest level since July 2005. Consumer prices rose 6.2 percent in August from a year earlier following a 6.5 percent increase in July that was the biggest in three years.

“Today’s fixing reflects China’s determination to tame inflation with a stronger currency,” said Edmond Law, deputy head of foreign exchange at BWC Capital Markets in Hong Kong. “The inflation slowdown in August was matched by the yuan’s gain for the same period. Yuan appreciation has proved useful in reining in prices.” The currency strengthened 0.9 percent last month, leading gains in Asia excluding Japan.

The yuan rose 0.08 percent to close at 6.3938 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It has advanced 1.1 percent this quarter. The currency is allowed to trade up to 0.5 percent either side of the reference rate.

In Hong Kong, the yuan climbed 0.15 percent to 6.4475, after strengthening 0.85 percent in the past two days, Bloomberg data show. Twelve-month non-deliverable forwards climbed 0.16 percent to 6.3680 per dollar, a 0.4 percent premium to the onshore spot rate, according to data compiled by Bloomberg.

Greater Flexibility

A more flexible exchange rate would help China slow growth to a more sustainable pace and bring inflation down, Bank of Canada Senior Deputy Governor Tiff Macklem said yesterday in Vancouver. China’s economic expansion this year may exceed 9 percent, Lu Zhongyuan, deputy director of the State Council Development Research Center, said in a statement distributed before a breifing in Beijing today.

The yuan will be “fully convertible” in five years should market reforms go smoothly, Li Daokui, an adviser to the People’s Bank of China, said Sept. 25 in Washington. The currency will strengthen to 6.06 per dollar by the end of 2012, according to the median estimate of 19 analysts surveyed by Bloomberg.

--Editors: James Regan, Andrew Janes

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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