China keeps yuan unchanged despite flexibility vow

 

A bank clerk counts US dollars and Chinese yuan in China's eastern Anhui province. China's central bank had said it would "strengthen the flexibility" of the yuan exchange rate but the bank moved Sunday to douse expectations, saying there would be no "large swings" in the currency and no one-off adjustment.… Read more »

China kept its yuan trading range unchanged Monday, but the currency rose to its highest point against the dollar since October 2008 after a weekend pledge by policymakers to make it more flexible.

 

The People's Bank of China set the central parity rate -- the centre point of the currency's allowed trading band -- at 6.8275 to the dollar, unchanged from Friday, according to a statement on its website.

 

Within the trading band of 6.7934-6.8616, the yuan strengthened to 6.8154 on the nation's main foreign exchange trading market, the highest level since October 8, 2008, Dow Jones Newswires reported.

 

The dollar had closed Friday at a higher rate of 6.8262 yuan.

 

"At the beginning the market was trying out around the level of Friday's close, but it has since turned to focus on the prospect of yuan appreciation in the near term," a Shanghai-based trader at a foreign bank told Dow Jones.

 

"Everyone is selling dollars now."

 

China's central bank said Saturday it would "strengthen the flexibility" of the yuan exchange rate, which some analysts saw as a sign Beijing was ready to adjust the dollar peg in place for two years and allow the currency to rise.

 

However, the bank moved Sunday to douse expectations, saying there would be no "large swings" in the currency and no one-off adjustment.

 

China has effectively pegged the yuan at about 6.8 to the dollar since mid-2008 to prop up exporters during the world financial crisis.

 

But it has come under mounting pressure ahead of next weekend's Group of 20 summit in Toronto to allow the currency to strengthen.

 

The issue has been a constant irritant in US-China ties, with American lawmakers charging Beijing deliberately undervalues the yuan, unfairly boosting Chinese manufacturers and costing US jobs.

 

The currency has been allowed to move within a 0.5-percent range on either side of the peg, and the central bank said Saturday it would maintain the existing trading band.

 

Analysts expect the currency to appreciate, albeit by a very small amount, this week in the belief that Beijing wants to head off an ugly spat with Washington at the June 26-27 meeting in Canada.

 

"I would expect some appreciation ahead of the G20 as a token of goodwill," said Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong.

 

However, the central bank's decision to leave the central parity rate unchanged Monday showed "gradualism will remain the guiding rule", he added.

 

Simpfendorfer expects a three percent yuan appreciation over the next 12 months, a pace that could invite renewed US impatience and pressure on China.

 

The central bank stressed it would maintain control over "exchange rate fluctuations" and ensure the "basic stability" of the currency -- official speak for keeping a tight grip on the yuan.

 

AFP/ Yahoo