By Lu Jianxin and Jacqueline Wong
SHANGHAI, July 26 (Reuters) - The yuan closed slightly higher against the dollar on Monday after the People's Bank of China set a slightly higher mid-point, a move that dealers said indicated the central bank wanted the yuan to remain stable for now.
The PBOC fixed the yuan's daily mid-point, or its reference rate from where the yuan can rise or fall 0.5 percent in a day, at 6.7778 versus the dollar from Friday's 6.7790.
Spot yuan closed at 6.7795 on Monday, up from Friday's close of 6.7803, and it has risen 0.69 percent since the PBOC announced a depegging of the yuan to the dollar on June 19.
Commenting on the depegging, PBOC's deputy governor Hu Xiaolian, said on Monday that a more flexible exchange rate would help China keep a lid on inflation and nip asset price bubbles in the bud.
Hu, who wrote in an essay on the central bank's website, www.pbc.gov.cn, did not talk about yuan appreciation.
'Today's yuan mid-point was set higher disregarding a stable dollar in global markets over the weekend, indicating the PBOC does not want the yuan to fall, although it neither wants it to rise,' said a dealer at a major European bank in Shanghai.
The yuan is expected to move narrowly in a range of 6.7700 to 6.7800 for now as the market awaits fresh signs of central bank intentions, several dealer said.
When announcing the depegging, the Chinese central bank made it clear that the yuan would still be tightly controlled, with limited room for a rise, and the currency could move in either direction, not just appreciate against the dollar.
The central bank has since backed its words with deeds, using transactions by state-owned banks to adjust supply and demand for dollars on the Chinese foreign exchange market, giving it virtual control over the pace of yuan appreciation.
In the latest sign of a consistent stable yuan policy, a top government think tank said on Monday that there was no basis for a major appreciation in the yuan exchange rate.
China should prevent speculative 'hot money' from pushing up the yuan and having a negative influence on the country's foreign trade, the State Information Center said in a report carried in the official China Securities Journal.
Dealers said one of the possible reasons for Beijing to stick to a stable currency policy for now was a slowing of China's economic recovery in recent months.
China's annual economic growth moderated to 10.3 percent in the second quarter from 11.9 percent in the first quarter, while consumer price inflation in June fell to 2.9 percent from a year earlier from 3.1 percent in May, data showed earlier this month.
'The government may be willing to wait to see how its economy will perform later in the year than to rush into letting the yuan appreciate,' said a dealer at a U.S. bank in Shanghai.
Offshore, benchmark one-year dollar/yuan non-deliverable forwards (NDFs) were quoted at 6.6875 bid late on Monday from Friday's close of 6.6950, with their implied 12-month yuan appreciation rising to 1.35 percent from 1.25 percent.
Dealers said there was light dollar shorting on Monday after the one-year NDFs touched a four-week high to imply less yuan appreciation late last week.
((jianxin.lu@thomsonreuters.com; +86 21 6104 1792; Reuters Messaging: jianxin.lu.reuters.com@reuters.net)) Keywords: MARKETS CHINA YUAN MIDDAY (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
SHANGHAI, July 26 (Reuters) - The yuan closed slightly higher against the dollar on Monday after the People's Bank of China set a slightly higher mid-point, a move that dealers said indicated the central bank wanted the yuan to remain stable for now.
The PBOC fixed the yuan's daily mid-point, or its reference rate from where the yuan can rise or fall 0.5 percent in a day, at 6.7778 versus the dollar from Friday's 6.7790.
Spot yuan closed at 6.7795 on Monday, up from Friday's close of 6.7803, and it has risen 0.69 percent since the PBOC announced a depegging of the yuan to the dollar on June 19.
Commenting on the depegging, PBOC's deputy governor Hu Xiaolian, said on Monday that a more flexible exchange rate would help China keep a lid on inflation and nip asset price bubbles in the bud.
Hu, who wrote in an essay on the central bank's website, www.pbc.gov.cn, did not talk about yuan appreciation.
'Today's yuan mid-point was set higher disregarding a stable dollar in global markets over the weekend, indicating the PBOC does not want the yuan to fall, although it neither wants it to rise,' said a dealer at a major European bank in Shanghai.
The yuan is expected to move narrowly in a range of 6.7700 to 6.7800 for now as the market awaits fresh signs of central bank intentions, several dealer said.
When announcing the depegging, the Chinese central bank made it clear that the yuan would still be tightly controlled, with limited room for a rise, and the currency could move in either direction, not just appreciate against the dollar.
The central bank has since backed its words with deeds, using transactions by state-owned banks to adjust supply and demand for dollars on the Chinese foreign exchange market, giving it virtual control over the pace of yuan appreciation.
In the latest sign of a consistent stable yuan policy, a top government think tank said on Monday that there was no basis for a major appreciation in the yuan exchange rate.
China should prevent speculative 'hot money' from pushing up the yuan and having a negative influence on the country's foreign trade, the State Information Center said in a report carried in the official China Securities Journal.
Dealers said one of the possible reasons for Beijing to stick to a stable currency policy for now was a slowing of China's economic recovery in recent months.
China's annual economic growth moderated to 10.3 percent in the second quarter from 11.9 percent in the first quarter, while consumer price inflation in June fell to 2.9 percent from a year earlier from 3.1 percent in May, data showed earlier this month.
'The government may be willing to wait to see how its economy will perform later in the year than to rush into letting the yuan appreciate,' said a dealer at a U.S. bank in Shanghai.
Offshore, benchmark one-year dollar/yuan non-deliverable forwards (NDFs) were quoted at 6.6875 bid late on Monday from Friday's close of 6.6950, with their implied 12-month yuan appreciation rising to 1.35 percent from 1.25 percent.
Dealers said there was light dollar shorting on Monday after the one-year NDFs touched a four-week high to imply less yuan appreciation late last week.
((jianxin.lu@thomsonreuters.com; +86 21 6104 1792; Reuters Messaging: jianxin.lu.reuters.com@reuters.net)) Keywords: MARKETS CHINA YUAN MIDDAY (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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