Banking News
- Yuan climbs to new high
Date: 7-Nov-2007 Sources: (Shenzhen Daily)
CHINA'S currency rose to a new record against the greenback Thursday after the U.S. Federal Reserve had cut the key interest rate the previous day.
The yuan central parity rate to the U.S. dollar broke the 7.46 mark to be 7.4552 Thursday. The new midpoint marked an appreciation of 0.6 percent over the past seven trading days and a 4.6-percent rise since the beginning of the year.
The hefty rise of 140 basis points over the previous session came after the Fed slashed the federal funds rate, an overnight lending rate between banks, by 25 basis points Wednesday to prevent a slowdown in the economy.
'The rate cut further reduces the appeal of dollars and will facilitate the capital flow to emerging markets, including China,'Guo Tianyong, a professor at the Central University of Finance and Economics (CUFE), said.
Yi Xianrong, a researcher with the Institute of Finance and Banking at the Chinese Academy of Social Sciences, said the yuan would continue to go higher at a quicker pace against the weaker dollar.
The weakening dollar puts rising pressure to appreciate on China's yuan and other major world currencies.
This was the 67th new high the yuan has hit since the beginning of this year, up more than 4 percent accumulatively. The accumulative appreciation since July 21, 2005, when China discontinued the yuan's peg to the greenback, has exceeded 8.3 percent.
However, China's exchange rate system was still a managed floating one, Guo said. The central bank had to take various factors into consideration when deciding whether to allow a faster appreciation in the coming days, he said.
In addition to the exchange rate pressure, China faces other fallouts from the Fed move. Before Wednesday, there was wild speculation in China that the People's Bank of China was mulling a sixth interest rate hike this year to keep the world's fastest growing major economy from overheating.
The country's GDP grew 11.5 percent year-on-year in the third quarter, while inflation jumped 6.2 percent in September, the National Bureau of Statistics said last week.
However, the Fed move increases the difficulty for the central bank to raise interest rates, said Song Guoqing, a professor at Beijing University. Song anticipates another rate increase this year.
The current one-year deposit rate in China stands at 3.87 percent while the U.S. federal funds rate is 4.50 percent after Wednesday's cut.
In an online vote on the Wall Street Journal Web site, by 2:29 p.m. Thursday Beijing Time, only 33 percent of those surveyed thought the Fed had made the right move, while 49 percent believed the rate should have been left unchanged.
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