The yuan hit a new post-revaluation high against the US dollar yesterday as the central bank for the first time set its daily mid-point below 7.3 against a dollar.
The yuan's central parity rate was 7.2996 to the dollar yesterday, the first day of trading this year. It was the highest since China de-pegged the yuan from the greenback and adopted a more market-based foreign exchange rate regime from July 2005.
"The breaking of the 7.3 mark is nothing surprising," said Wei Weixian, an economist with the University of International Business and Economics (UIBE). "The yuan has continued its momentum of appreciation in recent months."
The yuan has risen by 2.3 percent in the past two months, while for the whole of 2007, it gained 6.86 percent.
The weakening dollar is also an important factor behind the rising yuan.
The dollar remained weak yesterday against the euro on expectations that key US economic data to be released this week would reinforce prospects for more rate cuts from the Federal Reserve.
"Since the yuan's foreign exchange formation regime has changed and become more market-based, the yuan is set to continue to rise," said Zhang Jun, director of the China Center for Economic Studies at Fudan University.
China widened the daily floating band of the yuan from 0.3 percent to 0.5 percent last year. "In real market transactions, the floating of the yuan has once broken the new band limit and it would continue to break it, reflecting the stronger rising momentum of the yuan," Zhang told China Daily.
In the offshore non-deliverable forwards (NDF) market, one-year dollar-yuan NDFs in recent days indicate a yuan appreciation of about 9 percent over the next 12 months, analysts said.
"It reflects the expectations of the market," Zhang said.
Many researchers have forecast a faster appreciation of the yuan this year than in 2007. Zhu Jianfang, chief macroeconomics analyst of CITIC Securities, said it may rise to 6.8 by the year-end.
UIBE's Zhang said an appreciation rate of within 5 percent would be appropriate. The sharp rise in the value of the yuan would at least damage China's exports, one of the three pillars of the economy. "A large number of unskilled laborers are in the export industry and drastic appreciation of the yuan would cause serious problems," Zhang said.
Top Chinese officials have on various occasions reiterated that the yuan will be made more flexible in a "proactive, gradual and manageable" manner.
Source: China Daily
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