Tuesday, 27 September 2011

China Central Bank Sets Yuan Post at Record

BEIJING—China's central bank set the yuan's official guidepost at a new high Monday even as global investors continued to push the currency lower, suggesting that Beijing will continue to let the Chinese currency strengthen despite global economic jitters.

The People's Bank of China, which guides the yuan's daily trading range, didn't respond to requests for comment Monday.

But observers said the move suggests Chinese officials won't let unease over the world economic outlook get in the way of efforts to gradually guide the yuan higher, as they have since Beijing essentially removed the currency's peg to the U.S. dollar in June 2010.

A stronger yuan, also known as the renminbi, makes China's manufacturers less competitive abroad. But it also puts downward pressure on domestic inflation, strengthens consumption and burnishes the yuan's case for becoming a more global currency—something Chinese officials see as key to reducing Beijing's dependence on the U.S. dollar. China also faces international pressure, particularly from the U.S., to let the yuan rise and reduce what some U.S. lawmakers say is an unfair boost for China's exporters.

Monday's move by the PBOC is "a signal to the market that China will keep letting the yuan appreciate despite the risk aversion in the rest of the world," said Dariusz Kowalczyk, Hong Kong-based senior economist at Credit Agricole CIB. "As China continues to focus on fighting inflation, a stronger yuan is a quick way to bring down inflationary pressures," he said.   Read More

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