The yuan climbed to the highest since a dollar peg was scrapped in 2005 as traders speculated China will allow gains to help ease the record trade surplus. Bonds were little changed.
China said yesterday it will reduce export rebates on 2,831 products to help ease friction with other countries that has caused some U.S. lawmakers to accuse the nation of artificially keeping its currency low. The yuan should be allowed to move more to help the government's foreign-currency manager operate, said Li Yang, a former adviser to the central bank.
``China is clearly making an effort to ease trade tensions and a stronger yuan is going to be part of that,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``The trade surplus is exploding so we could see even faster appreciation than we've had so far.''
The yuan was set at 7.6180 and rose to as strong as 7.6155, before trading little changed at 7.6180 as of 5:30 p.m. in Shanghai. It may rise as much as 5 percent this year, said Lambregts. Since the dollar link was scrapped almost two years ago, the currency has risen 8.7 percent.
China is setting up an agency to manage some of the country's $1.2 trillion in foreign-exchange reserves, seeking investments in resources and overseas assets to maximize returns.
``If we're unprepared in our thinking to make this change, then our reforms to China's foreign-exchange mechanism will be slowed down,'' Li said today at a conference in Beijing. Li, head of the Chinese Academy of Social Sciences' Institute of Finance and Banking, is a former monetary policy adviser to the People's Bank of China.
The International Monetary Fund June 18 said it will start insisting its 185 members reject currency policies that create instability for other countries.
Bonds Unchanged
The yield on the benchmark five-year bond was unchanged at 3.47 percent after rising 9 basis points yesterday, according to the China interbank bond market. The price of the 3.18 percent security due April 2012 was at 98.73. Bond yields move inversely to prices and 1 basis point is 0.01 percentage point.
China's annual inflation rate may climb to about 3.3 percent in 2007 from a year earlier because of rising food costs, the China Securities Journal said today, citing a government research agency. That would be the fastest since 2004, when the measure reached 3.9 percent.
``Inflation pressure on the bond market may increase with the consumer price index topping 4 percent in October,'' said Zhang Lei, a fixed-income analyst at PICC Asset Management Co. in Shanghai. Inflation erodes the value of a bond's fixed payments.
Food-price increases may not slow until the fourth quarter, the Beijing-based newspaper said, citing the State Information Center, which is linked to the National Development and Reform Commission, China's top planning body.
China's inflation reached a 27-month high of 3.4 percent in May as pork prices soared. Consumer prices rose 1.5 percent in 2006.
source:www.bloomberg.com
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