Yuan Rises as Policy Makers Vow to Steer Growth, Curb Inflation

China’s yuan gained for a fourth day on speculation policy makers will ease monetary policy to protect growth and allow the currency to appreciate faster to curb rising consumer prices.

Premier Wen Jiabao said yesterday that economic policy will be fine-tuned as needed and the industry ministry said today it is studying “stimulative policies” for smaller companies as the global slowdown threatens growth. Wen said that stabilizing prices remains the government’s top priority. U.S. Treasury Secretary Timothy F. Geithner yesterday reiterated his calls for China to let the yuan rise. China’s inflation eased to 6.1 percent last month from a three-year high of 6.5 percent in July.

“Officials have signaled their intention to protect economic growth and that boosted investor confidence in the yuan,” said Banny Lam, a Hong Kong-based economist at CCB International Securities Ltd., a unit of China’s second-largest lender. “There’s still a need for China to tackle inflation with a stronger currency to lower import prices.”

The yuan strengthened 0.11 percent to close at 6.3533 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The People’s Bank of China set its daily reference rate 0.05 percent weaker at 6.3456. The currency is allowed to trade up to 0.5 percent on either side of the daily rate.

In Hong Kong’s offshore market, the yuan was unchanged at 6.4035 per dollar. Twelve-month non-deliverable forwards were little changed at 6.3885, a 0.6 percent discount to the onshore spot rate.

‘Go-Slow Approach’

The yuan has advanced 3.9 percent against the dollar this year, the best performance among Asia’s 10 most-traded currencies excluding the yen.

Lael Brainard, the U.S. Treasury’s undersecretary for international affairs, said yesterday China allowing its exchange rate to fully adjust is its “most powerful near-term tool” to combat inflation and shift demand toward domestic consumption. Yet, “strong interests within China” favor a “go-slow approach,” she said.

The Senate approved a bill on Oct. 12 that would let U.S. manufacturers seek duties on Chinese imports if they can prove they were harmed by manipulation of the yuan. House of Representatives Speaker John Boehner has voiced “grave concerns” that the measure may trigger a trade war, casting doubt on whether it will become law. The legislation is also opposed by business groups such as the U.S. Chamber of Commerce.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

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

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