Yuan Advances as Record Oil Price Increases Inflation Pressure


The yuan rose for the first time in three days on speculation China will use currency gains to prevent record oil prices from accelerating inflation.

The yuan approached the strongest level since a link to the dollar was scrapped in 2005 as China seeks to slow consumer prices from near an 11-year high. Premier Wen Jiabao said last week that the country will strike a balance between maintaining economic growth and cooling inflation.

The yuan rose 0.15 percent to 6.9897 per dollar as of 5:30 p.m. in Shanghai, from 7.0000 late yesterday, according to the China Foreign Exchange Trade System.

The People's Bank of China set the reference rate for yuan trading at 6.9912 today. The currency is allowed to trade by up to 0.5 percent against the dollar either side of the rate.

Crude oil futures touched an all-time high of $118.05 a barrel in New York.

China's economy, the world's fourth largest, expanded 10.6 percent in the first quarter from a year earlier, the ninth quarter of growth above 10 percent. Inflation was at 8.3 percent in March, close to the highest level in more than 11 years.

The central bank buys foreign currency to keep the yuan's value stable, then sells bills to absorb the money from circulation.


TradingEconomics.com, Bloomberg
4/22/2008 7:59:39 AM