Money

Yuan above 6.6 a dollar for first time since 1993

By Patricia Lui (China Daily)
Updated: 2011-01-01 09:42

SINGAPORE - The yuan strengthened beyond 6.6 per dollar for the first time since 1993 on speculation China will allow the currency to advance in an effort to tame inflation.

The benchmark money-market rate hit a three-year high.

The renminbi has climbed 0.5 percent in the past five days, headed for its fifth weekly gain, and reached the strongest level since China unified official and market exchange rates at the end of 1993.

Many economists forecast that the yuan will continue to rise against the dollar in 2011. The yuan will continue to appreciate, advancing 6 percent, said David Cohen, an economist at Action Economics Ltd in Singapore.

Related readings:  Yuan advances to 6.6389 per US dollar on Monday  China's yuan weakens to 6.6441 per US dollar Tuesday  China's yuan strengthens against US dollar Tuesday  China's yuan weakens against US dollar Monday

Unless the dollar rises strongly in 2011, the yuan may rise by 4 to 5 percent against the greenback, said Liu Dongliang, currency analyst at China Merchants Securities. "We do not exclude the possibility of the yuan's appreciation breaking through 5 percent."

Policymakers "recognize the usefulness of a stronger currency in curbing inflation", said Cohen. "The yuan, like other Asian currencies, has very strong fundamentals and the country has a very large current-account surplus."

The yuan climbed 0.1 percent to 6.5931 per dollar as of 11:48 am in Shanghai, earlier touching a high of 6.5925, according to the China Foreign Exchange Trade System. Twelve-month non-deliverable forwards advanced 0.2 percent to 6.4475, reflecting bets the currency will gain 2.3 percent in a year.

The People's Bank of China, the central bank, set the reference rate higher for the ninth day, at 6.6227 per dollar on Friday compared to 6.6229 on Thursday. The yuan is allowed to trade by up to 0.5 percent either side of the central parity rate.

The US Dollar Index, a gauge of the greenback's strength, retreated for the seventh day.

China's consumer prices climbed 5.1 percent from a year earlier in November, the biggest gain in 28 months, the statistics bureau said on Dec 11.

The seven-day repurchase rate, which measures lending costs between banks, advanced seven basis points to 6.34 percent, the highest level since October 2007.

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