China’s yuan at 6.4950 a dollar, appreciation quickening

Posted on May 10, 2011 in AllEconomic News
China’s central bank set the yuan’s official exchange rate at a new high of 6.4950 per dollar Tuesday, meaning the currency has risen more than 5 percent in nominal value, or more than 10 percent if China’s high inflation figures are taken into account.

The symbolic 6.50 ratio was broken on April 29, when the People’s Bank of China set the rate at 6.4990 yuan per dollar.

THE appreciation of the yuan against the US dollar has largely occurred because of a weaker dollar on the global market, Chinese experts say, warning that an influx of overseas “hot money” could keep flowing to the country, and increase inflationary pressure for the world’s second largest economy.

On the foreign exchange market, the yuan traded at 6.4866, the highest level in up to 20 years. Market watchers predict that the yuan will continue to rise against major currencies in the coming months, as China’s economy keeps growing by an annual 9-10 percent.

“The US dollar is weakening. That’s the main factor behind the accelerated appreciation of yuan,” said Su Guojian, research and managing director of China Construction Bank International.

Last month, the US Federal Reserve decided to keep its low interest rate unchanged for an extended period. It said it would continue its US$600 billion bond-buying program through June. The US central bank’s decision weakened the value of dollar, with the greenback plunging to its lowest level since July 2008.

The U.S. dollar is losing its attraction and might fall into crisis if the Federal Reserve maintains its excessively loose monetary policy, said Zhou Shihong, director of the China Finance Research Institute.

Zuo Xiaolei, chief economist with China Galaxy Securities, said the fast appreciation of yuan can lower import prices, but will increase market expectations for stable and risk-free appreciation. This may spur an influx of international capital and offset the government’s efforts to drain excessive money and combat inflation.

via China’s yuan at 6.4950 a dollar, appreciation quickening – People’s Daily Online.