Yuan Rises to Highest Since Link


The yuan rose to the strongest since a link to the dollar ended in 2005 as Fitch Ratings said China should allow the currency to gain faster to help curb inflation.

The currency, off to the best start to a year since the peg, climbed for a second day as a government report showed the annual inflation rate reached the highest in 11 years. China should consider a ``more aggressive'' appreciation in the yuan, Fitch said today.

The yuan gained 0.04 percent to 7.2288 per dollar as of the 5:30 p.m. close in Shanghai, according to the China Foreign Exchange Trade System. The currency touched 7.22, the strongest since China abandoned the link in July 2005 and started to manage the exchange rate against a basket of currencies including the yen and British pound.

It has appreciated 1 percent this year, after gaining about 7 percent in 2007. Forward contracts show traders are betting on an 8.5 percent advance to 6.6625 in the next 12 months.

China's inflation rate was 4.8 percent last year, exceeding the central bank's target of 3 percent, the statistics bureau said today. Consumer prices will rise by more than 5 percent in 2008, the most in 12 years, Fitch forecast.

China raised its benchmark deposit and lending rates six times last year to cool the economy, which expanded 11.4 percent in 2007. The one-year deposit rate is at 4.14 percent compared with the Fed's 3.5 percent benchmark rate.


TradingEconomics.com, Bloomberg
1/24/2008 3:28:09 PM