| Wider trading band possible for yuan |
SHANGHAI, Mar. 6 -- The Chinese yuan hit a new high against the US dollar yesterday as central bank Governor Zhou Xiaochuan said a wider trading band for the national currency is possible.
The People's Bank of China set the central parity rate for the yuan at 7.7403 against the greenback yesterday, the highest level since the end of the currency's direct dollar link in 2005. Trading closed at 7.75, after the yuan touched an intraday high of 7.7389.
"Zhou's remarks signal that the central bank is not against further appreciation of the yuan; hence there is strengthened market expectation for future gains in the Chinese currency," said Jin Di, a Bank of China trader based in Shanghai.
The yuan has advanced 6.4 percent since July 2005 when China scrapped the peg of 8.28 yuan to the greenback and weighted it against a basket of currencies.
Zhou said yesterday in Beijing that the yuan's flexibility is "desirable" and that the government will consider widening the currency's trading band.
"The yuan's movement should be based on the principle of supply and demand in domestic and global markets," Zhou said. "It's possible that China will gradually widen the movement of the currency."
China allows a daily 0.3 percent trading fluctuation from the parity rate. The central bank calculates the rate based on average weighted quotes from 10-plus commercial banks that serve as market makers to provide advice on the yuan's expected movement.
Economists have predicted the yuan will appreciate more than three percent this year, betting that a stronger currency will help soothe a swelling trade surplus that has flooded the economy with cash and sent foreign-currency reserves to US$1.07 trillion, the world's biggest amount.
The trade surplus, which swelled 74 percent to US$177.5 billion last year, was part of a 10.7 percent economic expansion, the fastest pace in a decade.
The government is seeking eight percent growth this year as curbing measures on land and lending continue to gain traction, Premier Wen Jiabao said yesterday at the opening of the annual session of the National People's Congress, China's legislature.
During this week, US Treasury Secretary Henry Paulson will make his third visit to Beijing and Shanghai since he assumed the post. Both nations are expected to talk about a more flexible foreign exchange regime and crackdowns on copyright infringement.
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