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Pressure on yuan weakening, China's central bank says

China's central bank has said that market expectations for a near-term appreciation of the currency are easing, with future indicators pointing to a further weakening, state press reported yesterday.

"The market seems to be moving in a stable way and expectations for further appreciation have eased and are starting to show a weakening trend," Xinhua news agency quoted central bank assistant governor Yi Gang (易綱) as saying.

"On the offshore market, discounts on yuan/dollar one-year non-deliverable forwards [NDFs] have narrowed, which means market expectations for appreciation have eased."

The central bank revalued the yuan in July by 2.1 percent to 8.11 to the dollar, scrapping an 11-year-old peg to the dollar in favor of a link to a basket of currencies.

In daily trade the yuan can move 0.3 percent on either side of the central parity rate, which is determined by the closing price each day.

"The yuan exchange rate has been basically stable since the new mechanism," Yi said at a forum on Sunday. "Feedback from the market is positive and expectations are stable."

China has been under steady pressure since the revaluation to make another adjustment, with major trade partners, especially the US, urging greater liberalization to the forex regime.

The US says the yuan is artificially weak, giving the Chinese an unfair trade advantage.

US President George W. Bush rose the issue again during his 40-hour trip to Beijing that ended yesterday morning.

During Bush's visit, Chinese President Hu Jintao (胡錦濤) pledged to take measures on the currency, although he gave no timeframe and his comments did not substantially differ from previous central bank and leadership statements.

"We will follow the principles benefitting not only China but also the world at large and unswervingly press ahead with reform of the exchange rate mechanism for the yuan," Hu said.

The yuan closed at 8.0832 to the dollar last Friday, up 0.33 percent since the revaluation.
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