Nov. 14 (Bloomberg) -- China’s government signaled it rejects interpretations of a central bank report this week as indicating a shift in the nation’s currency policy, according to Morgan Stanley.

Two days after a People’s Bank of China release dropped a pledge to keep the yuan “stable,” state news agency Xinhua cited “experts” saying that policy makers wouldn’t allow the currency to gain against the dollar in the “short term.”

“I consider this article an official effort by Chinese authorities to dismiss the renewed speculation of renminbi appreciation in the near term,” Wang Qing, chief Asia economist for Morgan Stanley in Hong Kong, wrote in a note to clients today. The renminbi is another term for the yuan.

The Xinhua article deepens a debate over the meaning of the change in PBOC language, which came days before President Barack Obama’s visit to Beijing, where he may raise the nation’s currency policy. The quarterly PBOC report said that China would account for “international capital flows and movements in major currencies” in setting the exchange rate.

The Chinese currency has tumbled against counterparts including the euro since March, in lock-step with the dollar. Authorities resumed a peg to the dollar in July 2008 in an effort to aid exporters battered by the global recession, after letting the yuan rise 21 percent over three years.

Rising Pressure

Calls for Premier Wen Jiabao’s government to loosen controls over the currency have escalated in recent weeks because of evidence that China’s recovery is strengthening. Economists anticipate the growth rate will reach 10 percent in the fourth quarter for the first time since the three months through June 2008.

Morgan Stanley Asia Chairman Stephen Roach said in an interview today that concerns over China’s currency policy are "seriously overblown." He urged critics to let the country decide how it wants to manage the yuan to ensure growth.

Chinese authorities, during the yuan’s three-year advance against the dollar, typically allowed a faster pace of gains “in the run-up to high profile meetings with the U.S.,” according to an analysis by Mark Williams, an international economist at research group Capital Economics Ltd. in London.

Obama begins a three-day visit to China tomorrow, his first as president, featuring meetings with Wen and President Hu Jintao. The U.S. Treasury Department last month criticized “the recent lack of flexibility” in the yuan.

PBOC Report

The PBOC, in its policy-outlook section of a quarterly report released Nov. 11, made a reference to accounting for capital flows for the first time in reports going back to the start of 2007, according to Williams’s analysis. The release omitted a pledge made three months earlier to keep the yuan “basically stable.”

The peg to the dollar helped spur more than $150 billion in speculative funds from overseas in the second and third quarters, according to China International Capital Corp.

Analysts at Calyon, the investment-banking arm of Credit Agricole SA and Westpac Banking Corp., were among those saying the PBOC language indicated authorities may let the yuan resume its appreciation early in 2010.

Shi Lei, a Beijing-based analyst at Bank of China Ltd., the nation’s third-largest lender, said “the change in description of the yuan policy may signal an early warning to the market.”

Xinhua Article

The Xinhua article yesterday quoted Tan Yaling of the China Institute for Financial Derivatives at Peking University saying that the new language meant China would reduce speculation and toughen oversight of risk. Xinhua cited Tan as saying that it didn’t necessarily indicate a change in exchange-rate policy.

“Our long-standing view on this issue remains unchanged,” Wang of Morgan Stanley wrote in his note. Analysts for the New York-based bank on Nov. 11 wrote in a report that “while we believe an exit from the current regime of a de- facto peg against the dollar may occur in the second half of 2010, any subsequent renminbi appreciation against the U.S. dollar is, in our view, likely to be modest and gradual.”

Goldman Sachs Group Inc. analysts also said the PBOC report wasn’t “a change in the yuan exchange-rate regime,” maintaining its projection for China to keep the currency at 6.83 per dollar for the next 12 months.

To contact the reporters on this story: Chris Anstey in Singapore at canstey@bloomberg.net;

Last Updated: November 14, 2009 00:56 EST