Yuan rate gets largest rise in decade

CHINA yesterday raised the daily reference rate for its Yuan by the largest margin in a decade, three months after a surprise devaluation.
The People’s Bank of China adjusted the central rate of the Yuan upward by 0.54 percent against the US dollar.
The increase was the largest since 2005 when Beijing unpegged the Yuan from the dollar.
Analysts attributed the move to improved sentiment toward the world’s second-largest economy as well as an impending decision by the International Monetary Fund on whether to include the Yuan in its internal “special drawing rights” reserve currency basket.
“The Yuan rose mainly because the market is responding to an increasing chance for it to be included in the SDR,” said Liao Qun, chief economist of Citic Bank International.
Even so the Yuan ended at 6.3371 yesterday, down around 0.3 percent from Friday’s close.
China now allows the Yuan to trade up or down 2 percent from the centrally set daily rate on the domestic foreign exchange market.
Authorities moved the Yuan almost 5 percent lower through the daily fix in one week in August, saying it was part of broader reforms aimed at shifting toward a more flexible exchange rate.
“The economy is stabilizing, so the expectation of further depreciation has weakened both at home and abroad,” said Liu Jian, an analyst from the Bank of Communications.
“On the other hand, the policy intention of the government is very obvious. It is trying to maintain a stable foreign exchange market and guide the market as stability is important for the Yuan to be admitted to the SDR at the coming IMF meeting.”
China wants the Yuan to be a global reserve currency alongside the dollar, but that depends on its willingness and ability to ease curbs on its trade.
China has pledged that it would not engage in competitive devaluation.