Yuan Near Highest Since Peg


The yuan traded near the highest since a dollar-peg was scrapped in 2005 after central bank Governor Zhou Xiaochuan said China needs to cut its trade surplus to prevent excess cash from stoking inflation.

The yuan has strengthened 4.5 percent versus the dollar this year, extending the 7 percent advance in 2007, reducing the cost of imports and making the nation's exports less competitive. The central bank today ordered banks to set aside larger reserves for the fourth time this year after a report showed the inflation rate stayed near an 11-year high in April.

The currency rose 0.05 percent to 6.9882 against the dollar in Shanghai as of 5:30 p.m., from 6.9918 on May 9, according to the China Foreign Exchange Trade System.

Chinese consumer spending needs to play a greater role in driving the economy and the trade surplus needs to be narrowed, Zhou said at a financial forum in Shanghai on May 10.

China's inflation accelerated to 8.5 percent in April, the National Bureau of Statistics said today, compared with 8.3 percent in March. Economists in a Bloomberg News survey expected a median 8.2 percent increase in consumer prices.

The central bank raised the reserve ratio to a record 16.5 percent of deposits from 16 percent, signaling combating inflation is still the nation's top priority.

Non-food prices climbed 1.8 percent, compared with 1 percent a year earlier. The Westpac Nominal Effective Exchange Rate, a trade-weighted index for the yuan, has climbed 3 percent this year, almost matching the 3.4 percent gain last year.

China's exports growth slowed to 21.8 percent in April from a year earlier, compared with 30.6 percent in March, the customs bureau said on its Web site today. The trade surplus was $16.7 billion, the same as a year earlier.


TradingEconomics.com, Bloomberg
5/12/2008 12:46:01 PM