Yuan Near 17-Year High as China Backs Advance to Tame Inflation

The yuan was little changed, trading near a 17-year high, amid speculation China will allow faster gains in its currency to tame inflation.

The People’s Bank of China set the daily reference rate at 6.5878 per dollar, compared with yesterday’s 6.5881 and the strongest level since 2005. China’s consumer price index rose 4.6 percent from a year earlier in December, after a 5.1 percent advance in November that was the biggest since July 2008.

“A stronger currency and further monetary tightening this year will be part of a multi-pronged approach to check inflation pressures, just as it has been during the last six months,” said Patrick Bennett, a Hong Kong-based strategist at Standard Bank Group Ltd.

The yuan traded little changed at 6.5819 per dollar as of 5:05 p.m. in Shanghai, according to the China Foreign Exchange Trade System. It reached 6.5808 on Jan. 24, the strongest level since China unified official and market exchange rates at the end of 1993.

Twelve-month non-deliverable forwards climbed 0.12 percent to 6.4512 in Hong Kong, reflecting bets the currency will gain 2 percent in a year. The U.S. Dollar Index, which tracks the greenback against the currencies of six major trading partners, fell for the fourth day.

The yuan has strengthened 0.7 percent in the past month. China’s President Hu Jintao and his U.S. counterpart Barack Obama met in Washington Jan. 19 to discuss issues including the strength of the yuan. The U.S. accuses China of keeping its currency artificially weak to benefit its exporters.

“The pace of appreciation has slowed a bit since Hu’s U.S. visit,” said Patrick Perret-Green, Singapore-based head of Asian currency strategy at Citigroup Inc. “Some cynics would say that China will only act when under political pressure.”

The central bank raised its benchmark one-year deposit rate twice in the last quarter, lifting it by half a percentage point to 2.75 percent.

--Sonja Cheung. Editors: Andrew Janes, Simon Harvey

To contact the reporter on this story: Sonja Cheung in Beijing at scheung58@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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