Yuan Climbs to Post-Peg High as China Focuses on Curbing Prices

By Judy Chen and Kim Kyoungwha

July 14 (Bloomberg) -- China's yuan climbed to the highest level since a dollar link was abandoned in 2005 on signs policy makers will seek a stronger currency to rein in inflation.

The yuan rose for a third day, extending its gain this year to 7 percent, surpassing the 6.86 percent advance for all of 2007 and making it the best performer among the 10 most-active Asian currencies excluding the yen. Curbing inflation will have a ``preeminent'' position among all macroeconomic controls this year, Premier Wen Jiabao reiterated this month.

``The government is still concentrating on the battle against inflation and needs to strengthen the local currency to win it,'' said Cao Lie, a Shanghai-based currency dealer at Bank of China Ltd., the country's largest foreign-exchange trader.


The yuan advanced 0.08 percent to 6.8286 versus the dollar as of 11:23 a.m. in Shanghai, from 6.8340 at the end of last week, according to the China Foreign Exchange Trade System. It rose as high as 6.8253 today, the strongest since the dollar peg was scrapped.

The People's Bank of China set the reference rate for yuan trading at the highest since the end of the peg for a third day. The yuan is allowed to trade by up to 0.5 percent against the dollar either side of the so-called central parity rate, which was fixed at 6.8266 today.

Slowing Growth

China may announce this week that the nation's growth slowed for the fourth quarter, a sign the government's policies to cool Asia's second-largest economy are taking effect.

Second-quarter gross domestic product may rise 10.3 percent, according to economists surveyed by Bloomberg News, slowing from the first quarter's 10.6 percent expansion. The statistics bureau is due to release the figure at 10 a.m. on July 17.

A global slowdown, rising production costs and a stronger yuan have hurt Chinese exports, threatening profits and jobs in the world's fastest-growing major economy.

``China may slow the yuan's appreciation and raise exporters' tax rebates to forestall the further deterioration in exports,'' said Xing Ziqiang, a Beijing-based economist at China International Capital Corp., the nation's biggest investment bank.

Xing forecast the yuan will appreciate 4.3 percent in the second half of this year to 6.57, slower than the first half's 6.6 percent advance.

Local-currency bonds rose, pushing yields to a two-week low, on speculation the government data will show slowing growth.

The yield on the 4.35 percent note due in November 2014 fell 7 basis points to 4.17 percent, the lowest since June 30, according to the China Interbank Bond Market. The price climbed to 100.99 from 100.63. A basis point is 0.01 percentage point.

To contact the reporters on this story:
[bn:PRSN=1] Judy Chen [] in Shanghai at
xchen45@bloomberg.net;
[bn:PRSN=1] Kim Kyoungwha [] in Beijing at
kkim19@bloomberg.net.