Tuesday, November 25, 2008

Yuan Watch : Virtual Re-Peg

BEIJING, Nov 25, 2008 (Xinhua via COMTEX)

Chinese currency RMB has changed its ceaseless appreciation against US dollar since mid-July this year and kept fluctuating moderately between 6.81-6.85.
This phenomenon inspires guesses that China's forex policy may be changed and make the yuan re-peg to US dollar again, says a recent Morgan Stanley report.
Yuan is the only emerging-market currency growing in value against US dollar this year, said Wang Qing, economist of the Grand China Area of Morgan Stanley.In Wang's viewpoint, RMB seems to have started to replay its pegging strategy to the US dollar instead of a basket of currencies just as what was the case before China's foreign exchange reform on July 21, 2005.
China's forex policy has taken a significant change, which focuses on stabilizing market expectations and therefore maintaining currency stability amid the ongoing global financial turmoil, say the note, citing the fluctuation between 6.81-6.85 is quite "small".
Looking forward, Wang thinks that the trend of yuan will gradually form a new pattern next year and it needs time to tell if it is temporary or permanent.
He believes that the better performance of China's stock market against other emerging markets mainly resulted from the firm yuan-dollar quotation since August this year, and that will remain the bolster-up for the country's stock market.
But if China's trade surplus shrinks considerably or China risks severer-than-expected deflation, we will not rule out the possibility of RMB depreciation against the US dollar, Wang says, adding that probability of such a case is small.

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