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Yuan Snaps Three-Day Decline as Wen Reiterates Need for Stimulus

July 16 (Bloomberg) -- China’s yuan halted a three-day drop after Premier Wen Jiabao reiterated that his government will implement policies to steer economic growth.

Wen warned the momentum for a recovery in growth isn’t yet in place and that “difficulties” may persist for a while, the official Xinhua News Agency reported yesterday. The government will step up policy fine-tuning in the second half, he said. The central bank may cut interest rates by as much as one percentage point in the coming year, two-year swap rates showed.

“China has to act as quickly as possible to safeguard growth,” said Banny Lam, Hong Kong-based chief economist at CCB International Securities Ltd., a unit of China’s second-largest bank. “The hopes of more stimulus measures are supporting the yuan today.”

The currency closed at 6.3787 per dollar in Shanghai, from last week’s 6.3789, according to the China Foreign Exchange Trade System. The currency gained as much as 0.06 percent to 6.3748 earlier. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 1.45 percent.

Asia’s largest economy expanded 7.6 percent in the second quarter from a year earlier, the slowest pace in three years, official data showed last week.

The People’s Bank of China set the yuan’s reference rate 0.06 percent stronger at 6.3208 per dollar, raising it for the first time in almost a week. The currency is allowed to trade as much as 1 percent on either side of the fixing.

In Hong Kong’s offshore market, the yuan traded at 6.3773 per dollar, little changed from last week’s 6.3766. Twelve-month non-deliverable forwards rose 0.04 percent to 6.4185, a 0.6 percent discount to the onshore spot rate, according to data compiled by Bloomberg.

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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