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Yuan Forwards Rise on Speculation Policy Makers to Allow Gains

Sept. 27 (Bloomberg) -- Yuan forwards gained by the most in six weeks on speculation Chinese policy makers will allow currency gains to tame inflation in the world’s second-biggest economy.

The nation should maintain a proactive fiscal policy along with prudent monetary policy because it helps curb inflation, Jia Kang, head of the research institute for fiscal science under the ministry of finance, wrote in a commentary in the People’s Daily today. The Bloomberg-JPMorgan Asia Dollar Index gained on optimism European leaders will consider restarting purchases of covered bonds to ease monetary conditions.

“Investors are buying into the market as European political leaders seem to be acting to stabilize the situation,” said Banny Lam, a Hong Kong-based economist at CCB International Securities Ltd. “Even if global economic growth falls sharply, China will continue to let the yuan gain to lower the cost of imports.”

Twelve-month non-deliverable forwards advanced 0.32 percent to 6.3790 per dollar as of 4:48 p.m. in Hong Kong, the biggest gain since Aug. 12, according to data compiled by Bloomberg. The contracts were at a 0.3 percent premium to the onshore spot rate

The yuan strengthened 0.02 percent to close at 6.3992 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency rose as much as 0.2 percent earlier. The People Bank’s of China set its daily reference rate 0.04 percent weaker at 6.3760.

In Hong Kong’s offshore market, the yuan rose 0.41 percent to 6.4535 per dollar, extending its gain this week to 0.9 percent, Bloomberg data show.

China must “quickly” implement a more flexible exchange-rate policy, Financial Times Deutschland reported yesterday, citing International Monetary Fund Deputy Managing Director Zhu Min. Consumer prices in China rose 6.2 percent in August from a year earlier after having climbed 6.5 percent the previous month. The increase in July was the most in three years.

To contact the reporter on this story: Fion Li in Hong Kong at

To contact the editor responsible for this story: Sandy Hendry at

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