U.S. to press China on yuan policy

U.S. to press China on yuan policy


Mon, Nov 23, 2009
Reuters


SHANGHAI - The yuan was flat against the dollar on Monday as the central bank set a stable reference rate, showing its resolve not to allow the yuan to appreciate, while U.S Treasury nominees press China to change its currency policy.

Nominees for key U.S. Treasury international posts pledged in Washington on Friday to work to persuade China to change its currency practices to allow critical adjustments in global trade and economic balances.

The Chinese central bank fixed the yuan's daily mid-point, or reference rate, at a nearly three-week low, at 6.8279 versus the dollar, compared with Friday's level of 6.8278.

But dealers said the mid-point, which was only one pip weaker, clearly showed the Chinese central bank planned to stick to its stable yuan policy.
Spot yuan remained flat, trading at 6.8280 at midday on Monday, barely changed from Friday's close of 6.8278.

"Now international pressure has increased but the impact will be limited on yuan appreciation for now," said a dealer at an Asian bank in Shanghai. "The most important factor is the year-end economic data, especially the exports data."
Yu Bin, with the State Council Development Research Centre, said in remarks published on Monday that China's annual economic growth will reach 10 percent this quarter and grow even faster in the first quarter of 2010.

Yu was quoted by a report saying China was stuck in a dilemma.
"With the depreciation of the dollar, maintaining stability of the renminbi exchange rate against the dollar will make the renminbi appreciate against the yen and euro, fanning trade friction and increasing pressure for appreciation of the renminbi," the report cited Yu as saying.

"If the renminbi appreciates too quickly, this will be a blow to China's huge export-driven industries, while a small appreciation will draw more capital into China speculating on the renminbi exchange rate, creating instability in financial markets", added Yu.

Offshore, benchmark one-year dollar/yuan non-deliverable forwards (NDFs) fell slightly to 6.6220 bid at midday on Monday compared with Friday's close of 6.6300.
Twelve-month yuan appreciation implied by NDFs fell slightly to 3.11 percent measured from the Chinese central bank's daily mid-point, compared with 2.98 percent implied at Friday's close.