Yuan Declines


The yuan fell by the most in more than a month after China said it is drafting regulations to control cross-border payments for services to curb rising inflows of ``hot money.''

The yuan dropped for a second day after an official at the State Administration of Foreign Exchange, who declined to be named, said controls on international payments for consultancy or franchising fees are ``relatively weak.'' The rules need to be strengthened to stop speculative capital inflows betting on further currency gains, he said. The yuan is the second-best performer among the 10 most-active currencies in Asia excluding the yen this year.

The yuan declined 0.15 percent to 6.8690 per dollar as of the 5:30 p.m. close in Shanghai, from 6.8589 late last week, according to the China Foreign Exchange Trade System. It may trade between 6.8450 and 6.8750 this month, Hao forecast.

The yuan gained 0.35 percent versus the dollar in April, the slowest pace since March 2007, after appreciating 4.2 percent in the first quarter.

The currency regulator is consulting with agencies including the commerce ministry on details before announcing the new rules, the official added.

The yuan earlier rose after Premier Wen Jiabao said the government's fight against inflation will have a ``preeminent'' position among macroeconomic controls.

Vice Premier Wang Qishan said the country will maintain its efforts to contain inflation, the Shanghai Securities News reported today.

The annual inflation rate rose to 8.1 percent in the first five months of the year, from 4.8 percent for all of 2007. The government will release inflation data for June on July 18.

Wen also reiterated his government's pledge to prevent major fluctuations in the world's fourth-biggest economy, according to a statement on the government's Web site. He made the comments on a three-day trip to the eastern province of Jiangsu and Shanghai.


TradingEconomics.com, Bloomberg
7/7/2008 6:36:00 AM