The yuan's central parity rate against the US dollar hit another post-revaluation high of 7.1209 yesterday, compared with Wednesday's midpoint of 7.1455, marking the biggest daily jump.
In market trading, the yuan also hit a new post-revaluation high of 7.1122 before it closed at 7.1133, achieving a record gain of 0.40 percent. Analysts said the weak US dollar, which was near its record low to the euro yesterday, was a major factor behind the yuan's rise.
The worrying economic data of the US and market expectation of more interest rate cuts have led to a weaker dollar, dealers said.
Analysts have suggested the yuan must rise faster to help the country ease the inflationary pressure. China's CPI, which is used to gauge inflation, hit an 11-year high of 7.1 percent in January. As the impact of the inclement weather since late January is to fully unfold, the index may near 8 percent in February and March.
The central bank has admitted in a monetary policy report that there is an increasing risk of rising inflation. It said it will "further" use the exchange rate policy to balance the economy, which, analysts said, indicated that policymakers may consider allowing accelerated yuan revaluation to reduce prices of imported products.
But no definite correlation has been found between faster yuan appreciation and lower inflation, said Dong Yuping, an economist with the Chinese Academy of Social Sciences.
Faster yuan appreciation could reduce prices of imported products, but it may also attract more foreign capital, which may intensify liquidity-induced inflation. "It is hard to conclude that there is a positive correlation between the two."
Moreover, although yuan revaluation has some bearing on inflation, tools such as interest rate, reserve requirement ratio and open market operations are what policymakers should use to curb inflation, said Lian Ping, chief economist of Bank of Communications, at a forum on Saturday.
Fast yuan appreciation would make things difficult for export-oriented manufacturers, analysts said, citing the closure of thousands of such companies in the coastal regions in recent months.
The central bank yesterday said it will continue its tight monetary policy this year in face of rising inflation risks.
Source:China Daily
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