Yuan Gains as Central Bank Sets Record Fixing Rate Before G-20 Gathering

China’s yuan advanced the most in a week as the central bank set a record daily reference rate and signaled before the Group of 20 nations’ summit that it will increase moves in the exchange rate.

The People’s Bank of China set the reference rate 0.16 percent stronger at 6.3198 per dollar, the highest level since July 2005. The government remains open to increased flexibility of the yuan, Zhang Tao, director general of the international department of the People’s Bank of China, said yesterday before the meeting in Cannes, France. Inflationary pressure in China is still high, Phoenix News Media reported yesterday, citing Chinese Vice Minister of Finance Li Yong.

“The record fixing reflects China is confident in its economic growth prospects and its determination to fight inflation,” said Banny Lam, a Hong Kong-based economist at CCB International Securities Ltd., a unit of China’s second-largest lender. “A stronger exchange rate is in line with China’s goal to make the yuan a global currency.”

The yuan advanced 0.09 percent to close at 6.3514 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency is allowed to trade up to 0.5 percent either side of the reference rate. There haven’t been any trades since 3:33 p.m. in Shanghai as the currency hit the bottom of the daily trading range.

“The yuan fixing is too high and investors are buying dollars in the market on expectations the greenback may strengthen further,” said Liu Dongliang, a Shenzhen-based senior analyst at China Merchants Bank Co., the nation’s sixth- largest lender.

Yuan Flexibility

The G-20 is debating whether to include a reference to China’s currency in a joint statement by leaders following their two-day summit, according to an official from one of the nation in the group. A draft of the communiqué singled out China as needing to allow more flexibility in its currency to help ease global trade and investment imbalances, the official said on condition of anonymity because discussions on the statement haven’t finished.

The official wasn’t convinced the citation will remain in the final version because of opposition from Chinese officials. The statement is scheduled to be released tomorrow.

In Hong Kong’s offshore market, the yuan slipped 0.11 percent to 6.3963 per dollar, after gaining 0.23 percent yesterday. Twelve-month non-deliverable forwards on the yuan declined 0.07 percent to 6.3745, a 0.4 percent discount to the onshore rate.

Yuan deposits in Hong Kong may have recorded a “sizable decline” in October as investor demand for the currency dropped on global economic instability, HSBC Holdings Plc said in a report dated yesterday. Investors could bet on yuan appreciation using “short-end” non-deliverable forwards rather than by purchasing the currency in the offshore market, the bank said.

Consumer prices rose 6.1 percent in September from a year earlier after having increased 6.2 percent in August, according to official data. The inflation rate has exceeded the government’s annual target of 4 percent every month this year.

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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