FT.com / World / Asia-Pacific - Renminbi�s tight rein a damper on US hopes
FT.com / World / Asia-Pacific - Renminbi�s tight rein a damper on US hopesRenminbi’s tight rein a damper on US hopes
>By Mure Dickie in Beijing
>Published: July 22 2005 18:42 | Last updated: July 22 2005 18:42
>>
China kept its newly unpegged and revalued currency on a tight rein on Friday, with the renminbi ending the day slightly lower against the dollar.
The decline appeared intended by Beijing to cool hopes that the policy change would open the way to the type of significant appreciation Washington has been demanding. US critics say the renminbi is undervalued by more than 20 per cent and gives China an unfair trade advantage.
In its first day of trade after a 2.1 per cent revaluation against the dollar, the renminbi slipped to 8.1111 from its opening of 8.1100.
Although the new mechanism allows the renminbi to rise or fall up to 0.3 per cent against the dollar each trading day, China's domestic currency market is dominated by the People's Bank of China, the central bank, with other traders playing a relatively minor role.
But on Friday international investors still expected more rises. In Singapore, one-year renminbi non-deliverable forwards rose to about 7.64 per dollar, a level that predicts further revaluation of more than 6 per cent by the middle of next year. Chinese stocks rose and shares of Asian exporters fell by magnitudes that also suggested another renminbi appreciation was likely.
Merrill Lynch, the US investment bank, forecast that the renminbi would rise to 7.5 to the dollar by the end of this year. Other analysts were more conservative. Bank of America saw the reminbi being held at 8.11 to the dollar until the year-end, while BNP Paribas believed Beijing would allow the renminbi to firm to 7.9 to the dollar by the year-end.
In early trading in London on Friday, eurozone government bond prices surged to a five-year high relative to US Treasury prices, as some investors concluded that Asian central banks would buy fewer US government bonds in future.
Although US Treasury prices later recovered slightly due to terrorism concerns, some investment banks think China’s move marks a watershed for the US bond market, points to higher yields in the future. “China will have to sell dollar assets while buying assets in other currencies, such as euro assets.. we expect further underperformance of US Treasuries,“ said BNP Paribas.
Expectations of future currency moves are widely seen as likely to fuel a renewed rush of speculative funds into China by companies and individuals who can find ways around the country's capital controls.
However, Xia Bin, director general of the Financial Research Institute under the State Council, China's cabinet, warned speculators against harbouring “illusions” about further revaluation, saying Beijing was likely to move carefully. No “clear” appreciation was likely in the remainder of this year, Mr Xia said.
The China Daily, Beijing's official English-language newspaper, said expectation of a revaluation bigger than Thursday's 2.1 per cent “was, and will be, unrealistic”.
China’s new exchange rate regime, described as a managed float to be set with reference to an undisclosed basket of currencies, is seen as giving policymakers greater flexibility in adjusting renminbi levels while retaining their final control of the currency.
Yu Yongding, a member of the People's Bank's monetary policy committee and a long standing supporter of revaluation, said he did not think China would allow dramatic changes in the exchange rate.
“The principle is stability as well as flexibility,” Prof Yu said. “We don't want to encourage speculative capital inflows.”
Additional reporting by Justine Lau in Hong Kong and Gillian Tett and Steve Johnson in London
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Find this article at:
http://news.ft.com/cms/s/d4705392-fad6-11d9-a0f6-00000e2511c8,ft_acl=,s01=1.html
>By Mure Dickie in Beijing
>Published: July 22 2005 18:42 | Last updated: July 22 2005 18:42
>>
China kept its newly unpegged and revalued currency on a tight rein on Friday, with the renminbi ending the day slightly lower against the dollar.
The decline appeared intended by Beijing to cool hopes that the policy change would open the way to the type of significant appreciation Washington has been demanding. US critics say the renminbi is undervalued by more than 20 per cent and gives China an unfair trade advantage.
In its first day of trade after a 2.1 per cent revaluation against the dollar, the renminbi slipped to 8.1111 from its opening of 8.1100.
Although the new mechanism allows the renminbi to rise or fall up to 0.3 per cent against the dollar each trading day, China's domestic currency market is dominated by the People's Bank of China, the central bank, with other traders playing a relatively minor role.
But on Friday international investors still expected more rises. In Singapore, one-year renminbi non-deliverable forwards rose to about 7.64 per dollar, a level that predicts further revaluation of more than 6 per cent by the middle of next year. Chinese stocks rose and shares of Asian exporters fell by magnitudes that also suggested another renminbi appreciation was likely.
Merrill Lynch, the US investment bank, forecast that the renminbi would rise to 7.5 to the dollar by the end of this year. Other analysts were more conservative. Bank of America saw the reminbi being held at 8.11 to the dollar until the year-end, while BNP Paribas believed Beijing would allow the renminbi to firm to 7.9 to the dollar by the year-end.
In early trading in London on Friday, eurozone government bond prices surged to a five-year high relative to US Treasury prices, as some investors concluded that Asian central banks would buy fewer US government bonds in future.
Although US Treasury prices later recovered slightly due to terrorism concerns, some investment banks think China’s move marks a watershed for the US bond market, points to higher yields in the future. “China will have to sell dollar assets while buying assets in other currencies, such as euro assets.. we expect further underperformance of US Treasuries,“ said BNP Paribas.
Expectations of future currency moves are widely seen as likely to fuel a renewed rush of speculative funds into China by companies and individuals who can find ways around the country's capital controls.
However, Xia Bin, director general of the Financial Research Institute under the State Council, China's cabinet, warned speculators against harbouring “illusions” about further revaluation, saying Beijing was likely to move carefully. No “clear” appreciation was likely in the remainder of this year, Mr Xia said.
The China Daily, Beijing's official English-language newspaper, said expectation of a revaluation bigger than Thursday's 2.1 per cent “was, and will be, unrealistic”.
China’s new exchange rate regime, described as a managed float to be set with reference to an undisclosed basket of currencies, is seen as giving policymakers greater flexibility in adjusting renminbi levels while retaining their final control of the currency.
Yu Yongding, a member of the People's Bank's monetary policy committee and a long standing supporter of revaluation, said he did not think China would allow dramatic changes in the exchange rate.
“The principle is stability as well as flexibility,” Prof Yu said. “We don't want to encourage speculative capital inflows.”
Additional reporting by Justine Lau in Hong Kong and Gillian Tett and Steve Johnson in London
>
>
>
Find this article at:
http://news.ft.com/cms/s/d4705392-fad6-11d9-a0f6-00000e2511c8,ft_acl=,s01=1.html
posted by Eastlaw at Monday, July 25, 2005
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