Yuan ex­change rate hits 6-year low amid volatil­ity

China Daily (USA) - - FRONT PAGE - By WANG YANFEI in Bei­jing

Ex­perts see no long-term de­pre­ci­a­tion of the yuan, fol­low­ing the cen­tral bank’s fix­ing of the cur­rency’s cen­tral par­ity rate at the weak­est level in six years on the first trad­ing day after a week­long hol­i­day.

The Peo­ple’s Bank of China set the mid­point of the cur­rency at 6.7008 against the US dol­lar on Mon­day, which is the weak­est level since Septem­ber 2010 and about 0.3 per­cent weaker than on Sept 30, the last trad­ing day be­fore the Na­tional Day hol­i­day.

An­a­lysts at­trib­uted the fluc­tu­a­tion to the strong volatil­ity of other ma­jor cur­ren­cies in the past week, es­pe­cially the Bri­tish pound, and ris­ing mar­ket ex­pec­ta­tions of a pos­si­ble in­ter­est rate hike by the US Fed­eral Re­serve by year’s end.

The pound fell un­ex­pect­edly by more than 6 per­cent against the dol­lar on Fri­day.

“The off­shore yuan, as a risk as­set, can­not be di­vorced from the pound’s im­pact,” said Wang Youxin, an econ­o­mist at the In­sti­tute of In­ter­na­tional Fi­nance, a think tank af­fil­i­ated with the Bank of China.

Wang added that the de­pre­ci­a­tion pres­sure would be trans­ferred to the on­shore yuan.

Re­cent strong data from the United States raised ex­pec­ta­tions for a rate hike and also strength­ened the dol­lar.

The non­man­u­fac­tur­ing pur­chas­ing man­agers in­dex in the United States rose to 57.1 in Septem­ber, the high­est level in a year, and the man­u­fac­tur­ing PMI went back to the ex­pan­sion range dur­ing the same pe­riod.

But de­pre­ci­a­tion of the yuan would not be long-last­ing, ac­cord­ing to Xie Yax­uan, chief econ­o­mist at China Mer­chants Se­cu­ri­ties Co.

He played down spec­u­la­tion that the cen­tral bank would al­low for 6.8 yuan per dol­lar by the end of this year.

“The de­pre­ci­a­tion of the yuan is quite nat­u­ral, with the re­cent stronger US dol­lar,” said Xie.

“It is only a re­flec­tion of its twoway volatil­ity. As China steps up ef­forts to open its do­mes­tic cap­i­tal mar­ket cou­pled with progress made in the in­ter­na­tion­al­iza­tion of yuan, mar­ket ex­pec­ta­tions will be more sta­ble,” he said.

Guan Tao, a se­nior of­fi­cial at the cen­tral bank, said that the fluc­tu­a­tion of the yuan shows that ex­change rate re­form is mov­ing to­ward a more mar­ket-ori­ented mech­a­nism.

“With signs of China’s econ­omy tick­ing up ap­pear­ing in the past few months, the cur­rency lacks fun­da­men­tals for long term dep­re­ca­tion,” said Wang. “The ex­change rate will not de­vi­ate too much from its cur­rent level.”

6.7008 Rate yuan was set at against dol­lar 6 per­cent Fall of pound against the dol­lar on Fri­day

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