The yuan rose the most in seven months yesterday, erasing a record loss posted in the run-up to last week's break in trading, after the central bank said it wants a stable currency.
The People's Bank of China will focus on "maintaining the stability of the currency when applying macro-economic controls to the financial sector and formulating monetary policy," said central bank Governor Zhou Xiaochuan in a statement on its Website on Monday.
The currency rose 0.38 percent to 6.8169 to the United States dollar as of 5:30pm yesterday in Shanghai, according to the China Foreign Exchange Trade System. A 0.08 percent gain on Monday followed a 0.46 percent slide on September 26, the biggest drop since a dollar peg ended in July 2005. China's financial markets were closed last week for the National Day holiday.
"The decline before the holiday was too big, and the government thinks it necessary to stabilize the market," said Liu Dongliang, a Shenzhen-based foreign-exchange analyst at China Merchants Bank, the country's sixth-largest lender.
He predicts the yuan won't strengthen beyond 6.8 a dollar this week.
China's currency is allowed to trade by up to 0.5 percent against the dollar on either side of the so-called central parity rate, which was set at 6.8345 per dollar yesterday, Bloomberg News said.
The yuan gained 0.08 percent in the last three months, the smallest quarterly advance since the peg ended more than three years ago.
Gains have slowed as the government shifts its focus to sustaining economic growth.
Smooth and fast economic development in China is a policy that will be of greatest benefit to the global economy, Premier Wen Jiabao said on Monday.
Governments in Europe are seeking to shore up faltering financial institutions and the US is enacting a US$700 billion bailout as a deepening credit crisis increases the risk of a global recession.
Government bonds gained after the central bank sold one-year sterilization bills at a lower yield for the third time this year.
The central bank issued 80 billion yuan (US$11.7 billion) of one-year bills at a yield of 3.9069 percent, 9.7 basis points less than for similar-dated paper sold on September 23.
(Shanghai Daily October 8, 2008)