China Banking Regulatory Commission Chairman Liu Mingkang said the yuan has entered a period in which it will only appreciate, the Financial News reported.
The country’s interest rates will increase in this period while liquidity at banks will be volatile, the Beijing-based newspaper, published by China’s central bank, cited Liu as saying during a recent meeting in Beijing.
People’s Bank of China Governor Zhou Xiaochuan said last month that policy makers may use means “including rates and currency” to curb increases in food and home prices. The central bank has raised benchmark lending and deposit rates in the first two months of this year and increased the reserve requirement for banks to curb inflation.
Liu’s statement “probably refers to the medium-term trend for the yuan,” Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Credit Agricole SA, said in an interview. The reference to one-way gains “isn’t usually stated given that it encourages hot money inflows," he said.
The Chinese authorities will continue to leave plenty of room for short-term fluctuations in the currency against the backdrop of longer-term appreciation, Kotecha said.
The yuan rose 0.03 percent to 6.5697 per dollar as of 11:25 a.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency has gained 3.5 percent since a two-year peg was relaxed in June, and touched a 17-year high of 6.5654 on Feb. 21.
A stronger yuan allows China to more cheaply import commodities such as oil, copper and soybeans, which are priced globally in dollars.