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China's forex regulator sees pressure for yuan to rise

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littlekracker


March 9, 2010, 12:43 a.m. EST · Recommend (1) · Post:
China's forex regulator sees pressure for yuan to rise

By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) -- China's currency is under pressure to appreciate because of attractive interest rates and speculative capital flowing into the country, the country's foreign-exchange regulator was reported as saying Tuesday.

The comparatively high interest rate paid on yuan deposits and expectations the currency will rise are likely to attract greater inflows of investment capital, the director of the State Administration of Foreign Exchange (SAFE) said in a statement cited by various reports.

The premium on one-year yuan deposits over their U.S.-dollar deposit equivalents has reached 1.43 percentage points, according to a report by Bloomberg News.

Yi Gang, the director of SAFE and a vice governor of the People's Bank of China, said the agency will strengthen its supervision of unusual cross-border fund inflows and steadily promote yuan convertibility under the capital account.

Reports also cited Yi as saying Tuesday that China's foreign-exchange reserves, which include U.S. dollars, euros and yen, are basically safe and their long-term revenues are expected to be stable. He said that China's foreign-exchange reserves are also made up of currencies from emerging markets but didn't specify which currencies.
When will yuan rise?

Yi also touched on the timing of a move higher for the yuan, but failed to offer any clarity, according to a Dow Jones Newswires report.

He said that there are differing views within China on the issue of the yuan exchange rate, according to the report, though no other details on the debate were offered.

Yi said China will continue to improve the currency-rate mechanism but strive to keep that mechanism basically stable, according to the report.

Stephen Green, Standard Chartered's head of China research, said in a note Monday that Beijing will likely allow the yuan to appreciate against the U.S. dollar sometime later this year, although it will probably opt for a gradual appreciation rather than a sharp one-off move.

Green cited comments by PBOC Gov. Zhou Xiaochuan over the weekend suggesting the Chinese currency would eventually be allowed to rise against the U.S. dollar, saying the remarks marked an important departure from the official rhetoric of the last 18 months. See full story on People's Bank of China governor's comments.

"International pressure on China to revalue its currency will continue to increase," wrote Green.

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