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Experts: Renminbi rise no surprise

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The Chinese currency rose to a fresh high against the US dollar Monday but analysts believe the appreciation is not unexpected.

The People's Bank of China, the central bank, set the central parity rate - a benchmark set on the basis of weighted average prices given by market makers - at 7.8402, breaching the 7.85 psychological barrier.

The value of the renminbi has risen by 5.31 per cent since July 21 last year, when the government reformed the exchange rate system to allow the yuan to float against the US dollar within a daily 0.3 per cent band from the official central parity rate.

The exchange rate was set at about 8.27 per US dollar before the reform.

"Given the trend of the yuan's appreciation (in the past months), today's rise has not surprised us," Wang Hong, a Shanghai-based analyst, said Monday.

The US currency has been falling globally, especially ahead of a speech to be given today by Federal Reserve Chairman Ben Bernanke, which may further drive down the value of the greenback, analysts said.

Moreover, the expected visits by Bernanke and Treasury Secretary Henry Paulson to China also contributed to the upward movement of the renminbi. Many market watchers believe they will press the Chinese Government to revalue the yuan, which Washington says is undervalued.

Politics, however, is not the main factor behind the renminbi's appreciation. "At a certain point, news about such visits may affect the instant movement of the yuan," said Li Yongsen, researcher with Renmin University of China's Financial and Securities Institute. "but they are only temporary."

The value of the yuan has been rising gradually under the pressure of China's stockpile of foreign exchange reserves and huge trade surplus. The US dollar, on the other hand, has weakened since many countries seem to be adjusting the US dollar-centred international reserve structure.

Yi Xianrong, researcher with the Institute of Finance and Banking of the Chinese Academy of Social Sciences, said: "The new high (in the yuan's central parity rate) is not surprising, it is still within the (band) limit of 0.3 per cent."

In the wake of last July's reform, the market's general expectation has been that the renminbi would appreciate to about 7.8 yuan per US dollar by the end of the year.

The Hong Kong dollar, which is pegged to the US currency, hit a new low against the yuan yesterday, with their value almost equal.

"Since the Hong Kong dollar is virtually pegged to the US dollar, its weakening against the renminbi is only a matter of course," said Yi.


 

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