Sat, Jan 22, 2011 - Page 11 News List

Yuan nears 17-year high on US push, rate outlook

MORE AGGRESSIVE POLICY:China’s GDP grew 9.8% in the last quarter, with inflation easing to 4.6%, and analysts believe China’s central bank will raise rates next month

Bloomberg

The yuan traded near a 17-year high after the US stepped up pressure for faster appreciation and an unexpected pickup in economic growth spurred speculation the central bank would raise interest rates this quarter.

US President Barack Obama told Chinese President Hu Jintao (胡錦濤) this week that the yuan’s value was kept artificially weak and faster appreciation should be allowed.

“It seems reasonable that the yuan would rise markedly before Hu’s meeting with Obama,” said Robert Minikin, a senior foreign-exchange strategist at Standard Chartered PLC in Hong Kong. “Now they’ve met, there may be some consolidation going forward.”

The yuan rose 0.03 percent to 6.5833 per dollar as of 4:36pm in Shanghai, boosting this week’s advance to 0.10 percent, according to China Foreign Exchange Trade System data. The currency reached 6.5817 on Wednesday, the strongest level since China unified official and market exchange rates at the end of 1993.

The People’s Bank of China set the yuan’s daily fixing at 6.5886 per dollar yesterday, little changed from Thursday’s 6.5883. The yuan is allowed to trade by up to 0.5 percent on either side of the so-called central parity rate.

GROWTH, INFLATION

GDP rose 9.8 percent from a year earlier in the three months through last month, accelerating from a 9.6 percent pace the previous quarter, China reported on Thursday.

Economists forecast 9.4 percent growth, a Bloomberg survey showed. Inflation eased to 4.6 percent last month from last November’s 5.1 percent pace, which was the fastest in more than two years.

The central bank raised its benchmark one-year deposit rate twice in the last quarter, lifting it by half a percentage point to 2.75 percent.

This month, it ordered major banks to set aside more funds as reserves for the fourth time since last October, helping limit credit expansion as policymakers tackle inflation.

“We see a growing likelihood of more aggressive policy responses,” Ma Jun (馬駿), chief China economist at Deutsche Bank in Hong Kong, said on Thursday. “We do not rule out the possibility of another rate hike in the coming weeks.”

RATE OUTLOOK

UBS economist Wang Tao (王濤) said on Thursday that interest rates may be raised next month.

Minikin said he expected 75 basis points of increases by the middle of this year. A basis point is 0.01 percentage point.

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