China gives Yuan biggest boost in a decade AFP

china yuan

China today raised the daily reference rate for its yuan currency by the largest margin in a decade, officials and reports said, just three months after a surprise devaluation sent shockwaves through global markets.

The central People’s Bank of China adjusted the central rate of the yuan — also known as the renminbi (RMB) — upwards by 0.54 per cent against the US dollar, according to a statement.

The increase was the largest since 2005 when Beijing unpegged the yuan from the dollar, Bloomberg News reported.

Analysts attributed the move to improved sentiment towards the world’s second largest economy as well as an impending decision by the International Monetary Fund on whether to include the yuan in its internal “special drawing rights” (SDR) reserve currency basket.

“The RMB rose mainly because the market is responding to an increasing chance for it to be included in the SDR,” Liao Qun, chief economist of Citic Bank International, told AFP.

Even so the yuan ended at 6.3371 today, down around 0.30 per cent from Friday’s close.

China now allows the currency to trade up or down two percent from the centrally set daily rate on the domestic foreign exchange market.

Authorities moved the yuan almost five percent lower through the daily fix in one week in August, saying it was part of broader reforms aimed at shifting towards a more flexible exchange rate.

“The economy is stabilising, so the expectation of further depreciation has weakened both at home and abroad,” Liu Jian, an analyst from the Bank of Communications, told AFP.

“On the other hand, the policy intention of the government is very obvious. It is trying to maintain a stable foreign exchange market and guide the market as stability is important for the yuan to be admitted to the SDR at the coming IMF meeting.”

China wants to promote the yuan as a global reserve currency alongside the dollar, an ambition that depends on its willingness and ability to loosen tight restrictions on its trade.

But authorities fear that losing control of the yuan’s value will mean giving up a powerful tool for managing the economy, which last quarter experienced its slowest growth in six years.

The August devaluation raised concerns abroad that the Chinese economy was performing worse than had been acknowledged, and fuelled fears that Beijing was trying to make its exports cheaper to give it a boost.

China has pledged that it would not engage in competitive devaluations.

[“source -financialexpress”]