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By Catholic Online (NEWS CONSORTIUM)

4/14/2013 (1 year ago)

Catholic Online (www.catholic.org)

Yuan is only expected to grow stronger after mainland China recovers

The Chinese yuan reached a record high last week. The central bank fixed its midpoint against the U.S. dollar at the strongest level ever. The yuan is only expected to strengthen this year. Inflows of capital are expected to generate higher demand for the yuan than last year as the mainland economy recovers, economists said.

China typically lets the yuan appreciate faster before visits by officials from Western countries, which usually push for exchange rate liberalization.

China typically lets the yuan appreciate faster before visits by officials from Western countries, which usually push for exchange rate liberalization.

Article Highlights

By Catholic Online (NEWS CONSORTIUM)

Catholic Online (www.catholic.org)

4/14/2013 (1 year ago)

Published in Asia Pacific

Keywords: Yuan, China, Hong Kong, U.S. dollar, recovery, capital


LOS ANGELES, CA (Catholic Online) - The level sparked anticipation of further appreciation for 2013 and further inflamed inflationary pressure on the mainland and Hong Kong.

The People's Bank of China set the midpoint at 6.2506 yuan per U.S. dollar, which was up from the fixing of 6.2578 on Thursday, before the visit by U.S. Secretary of State John Kerry to Asia. The yuan jumped to 79.775 Hong Kong dollars per 100 yuan, near the record of 79.729 last Wednesday.

China typically lets the yuan appreciate faster before visits by officials from Western countries, which usually push for exchange rate liberalization.

"In 2013 we'll see greater risks of capital inflows to China, rather than two-way movements in the yuan exchange rate or capital outflows as last year," economist at Barclays Capital Chang Jian says. Barclays expects the yuan to strengthen two percent against the greenback this year, after considering China's intention to protect exporters in the still shaky economic recovery.

The yuan rate in the spot market touched 6.1903 per dollar yesterday, the highest since 1994. The yuan spot rate has risen 0.6 per cent so far this year, after hitting highs in the past couple of weeks.

The spot rate for yuan would reach 6.18 by the end of June and 6.10 by the end of this year, according to Economists at Standard Chartered forecast. They say China was unlikely to follow Japan in depreciating its currency, as Japanese exporters are not its major competitors.

DBS Bank economist Nathan Chow expects the strengthening of the yuan to continue to put pressure on inflation in Hong Kong because the city's currency is pegged to the U.S. dollar.

"The inflationary pressure caused by the yuan appreciation is inevitable, as Hong Kong imports a variety of goods, such as food and medical supplies, from the mainland," Chow said.

A one percent rise in the yuan would result in a 0.05 percentage point increase in Hong Kong's consumer inflation, the Monetary Authority says.

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