Yuan slips, PBOC signals gradualism in Yuan appreciation

SHANGHAI: The Yuan pulled back slightly on Monday as the People's Bank of China fixed its mid-point marginally weaker to signal the government's intention to keep its gradual pace of Yuan appreciation in place.

The PBOC's fixing appeared partly aimed at quelling market talk last week that China might conduct a one-off Yuan revaluation to curb inflation amid high global commodity prices.

The speculation was sparked by media reports that Xia Bin, an academic adviser to the PBOC, said that he could not rule out such a move by the government. Xia is not a policy maker and his comments do not represent the government's stance.

"The PBOC fixing was set even when the dollar remained weak in global markets and appeared designed to warn speculators against too much expectation of Yuan appreciation," said a dealer at a Chinese bank in Shenzhen.

"But the pullback will not have an impact on China letting the Yuan continue to appreciate to fight imported inflation."

Spot Yuan was trading at 6.5151 versus the dollar at midday, down from its record high of 6.5067 hit at Friday's close and has now risen 4.77 percent since it was de-pegged in June 2010 and 1.14 percent so far this year.

Before trading began, the PBOC fixed the Yuan's daily mid-point five pips weaker at 6.5161 from Friday's record fixing of 6.5156.

The PBOC has set a slew of record high fixings this year to express the government's intentions for the Yuan to appreciate against the dollar to help fight imported inflation.

But the latest data published by the Bank for International Settlements showed the Yuan's value against a trade-weighted basket of currencies fell 0.7 percent in March in a clear indication that the government still wants and needs to protect exports and other exchange rate-sensitive sectors.

The Yuan's nominal effective exchange rate (NEER), as compiled by BIS, had fallen 4.3 percent since last June, when the currency was unshackled from a de facto peg to the dollar.

Chinese officials, including Premier Wen Jiabao, have said repeatedly that the Yuan's rise will be gradual and there will be no surprise of a one-off adjustment in the Yuan's value any more after a 2.1 percent landmark revaluation in July 2005.

Offshore, one-year dollar/Yuan non-deliverable forwards (NDFs) were bid at 6.3320 at midday, up from 6.3220 at the previous close. Their implied Yuan appreciation in a year's time fell to 2.90 percent from 3.07 percent, echoing the slip in onshore spot Yuan, traders said.