Bloomberg News

Yuan Strengthens After Premier Wen Vows to Tackle Inflation

October 24, 2011

Oct. 24 (Bloomberg) -- China’s yuan gained the most in almost two weeks on speculation policy makers will tolerate further gains after Premier Wen Jiabao reiterated the need to curb rising consumer prices.

The nation must continue efforts to control food and housing prices to ease inflation and maintain economic development and social stability, Wen said in a statement posted on the government’s website on Oct. 22. Consumer prices rose 6.1 percent in September from a year earlier, compared with August’s 6.2 percent, according to official data. China probably won’t ease monetary policy until inflation is less than 5 percent, Yu Yongding, a former central bank adviser, said Oct. 21.

“Wen’s comments show that China still puts tackling inflation as its top priority,” said Stella Lee, the Hong Kong- based president of Success Futures & Foreign Exchange Ltd. “That’s positive for the yuan as a stronger currency can help lower imported costs.”

The yuan gained 0.13 percent to close at 6.3754 per dollar in Shanghai, according to the China Foreign Exchange Trade System. That was the biggest rise since Oct. 12. The People Bank’s of China raised the daily reference rate 0.12 percent to 6.3549. The yuan is allowed to fluctuate 0.5 percent on either side of the fixing.

In Hong Kong’s offshore market, the yuan advanced 0.14 percent to 6.4165 per dollar, a 0.6 percent discount to the onshore spot rate. Twelve-month non-deliverable forwards advanced 0.18 percent to 6.4035, 0.4 percent weaker than the spot rate in Shanghai.

Manufacturing Index

China’s manufacturing may expand in October for the first time in four months, snapping the longest contraction since 2009, a preliminary index released by HSBC Holdings Plc and Markit Economics today shows. The reading of 51.1 for the flash index was the highest in five months and compares with the final reading of 49.9 for September and August. A reading above 50 indicates expansion.

China is working on an agreement with the Association of Southeast Asian Nations to use the yuan as a trade-settlement currency, the official Xinhua News Agency reported on Oct. 22, citing Jin Qi, assistant governor of the People’s Bank of China. The percentage of China’s total trade that is settled in yuan increased to 9 percent in the first half of 2011, from 4 percent in the second half of 2010, according to Hong Kong Monetary Authority data.

--Editors: Andrew Janes, Ven Ram


To contact the reporter on this story: Fion Li in Hong Kong at

To contact the editor responsible for this story: Sandy Hendry at

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