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Yuan's wider trading band to ease appreciation pressure: economists

2012/04/15 17:10:49

Taipei, April 15 (CNA) The Chinese yuan's wider trading band against the U.S. dollar will help ease pressure on China to appreciate its currency and slow inflationary pressures there, economists said Saturday.

Steven Yang, director of Research Division VI of the Taiwan Institute of Economic Research, characterized the move, which could lead to the further appreciation of the Chinese yuan, as not necessarily a bad thing because it could help ease inflation in China at a time of rising crude oil prices.

He suggested that China's decision to expand the daily floating range of its currency might also be a gesture aimed at giving it some leverage in negotiations on trade issues with the United States.

As for the move's effect on Taiwan, Yang said he expected only a minor impact because the Taiwan dollar is not facing strong pressure to appreciate rapidly.

China's central bank announced Saturday that it would expand its floating range from 0.5 percent to 1 percent as of Monday to allow the currency's rate to move more freely and better reflect market demand and supply.

Central bank Governor Zhou Xiaochuan said in early March that the floating range could be widened because the currency's exchange rate was close to an equilibrium level.

China has been allowing the yuan to move 0.5 percent above or below a midpoint price set by the country's central bank each trading day.

Zhang Ming, a deputy researcher at the China-based Institute of World Economics and Politics of the Chinese Academy of Social Science predicted Sunday that the Chinese yuan would continue to appreciate against the greenback in the future but at a slower pace.

"We expect that the Chinese yuan will appreciate by between 2-3 percent this year, which is lower than the 5 percent seen the past two years," Zhang said.

A day earlier, Lu Ting, an economist at Bank of America Merill Lynch, said that expanding the floating rate could alleviate international pressure on China to allow the yuan to appreciate and that the range was bigger than the 0.7 percent expected by the market.

Lu said his bank expects the dollar-yuan exchange rate to be at 6.2 at the end of the year. It traded Friday at around 6.3.

The Chinese yuan has risen nearly 24 percent against the U.S. dollar since a floating range mechanism was introduced in July 2005.

Initially, the yuan was allowed to fluctuate by 0.3 percent on either side of the midpoint price, but the band was later widened to 0.5 percent in May 2007.

Sun Lijian, vice dean of the school of economics in China's Fudan University, said on his microblogging page Saturday that in the long run, the Chinese yuan would follow a trend toward appreciation and present a challenge to the country's economic development.

Many of China's trade partners and several U.S. lawmakers have criticized the country's exchange rate, accusing China of deliberately keeping its currency cheap to benefit its exports.

(By Wu Ching-chun, Charles Kang, Hanna Liu and Jamie Wang)