The Chinese yuan rose to its highest level in more than two years after the central bank bolstered the reference rate after recent comments from government officials that hinted the currency won’t continue declining.
The People’s Bank of China (PBOC) pegged the daily fix 0.04 percent higher at 6.1252 a dollar on Monday, after letting it decline 0.25 percent in the last four days.
This came after comments by China’s Vice Finance Minister Zhu Guangyao, who told CNBC in an interview today that “the potential for yuan depreciation is not big”. PBOC Vice Governor Yi Gang was also quoted by Caixin magazine as saying that “two-way movement of the currency will be the trend, and that the central bank’s role in exchange rate will wane”.
The yuan rose 0.58 percent, its highest since mid-October 2011, to close at 6.1888 a dollar in Shanghai. This is a remarkable reversal of fortunes after it posted its steepest drop since 2007 last week. The yuan has declined 2.2 percent this year, and its spot rate was 0.7 percent lower against the PBOC’s reference rate.
However, the figure is well within PBOC’s 2 percent limit.
“The yuan should gain amid a strong fixing,” said Dariusz Kowalczyk, an analyst at Credit Agricole CIB in Hong Kong. “With the recent move being one-way, we think the odds are skewed towards a rebound of both onshore and offshore yuan.”
China stretched the yuan’s trading band to 2 percent on March 17, up from previous range of 1 percent. Analysts have predicted that the yuan’s depreciation will end soon as China’s money-market rates have rebounded, indicating that PBOC has stopped shoring the local currency market.
To contact the reporter of this story; Jonathan Millet at email@example.com