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China says yuan could revalue further

China's central bank said yesterday that it will make further adjustments to the yuan at an appropriate time, signalling that more changes to the currency would be forthcoming after a 2.1 percent revaluation two weeks ago.

However, any further revision of the yuan exchange rate would depend on the financial environment with reference to the basket of currencies that determine the yuan's exchange rate, the bank said in its second-quarter report.

"The central bank will adjust the exchange rate floating band at the proper time according to market developments and the economic and financial situation," the statement said.

The People's Bank of China pledged to maintain "a normal float" of the exchange rate and reiterated that it would also maintain the currency at a reasonable and balanced level.

It reiterated that over time it would explain to the markets the workings of the currency basket and reintroduce currency derivatives forwards and swaps to the interbank market to better provide risk-management tools.

China freed the yuan from an 11-year-old peg to the US dollar in favor of a trade-weighted basket of currencies, allowing the yuan to appreciate 2.1 percent. But international currency traders widely expect the yuan to appreciate by a total of 7.4 percent by the year-end.

The Chinese yuan closed at 8.1027 to the US dollar yesterday, its highest level since the revaluation.
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