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Bank: No yuan change, unpeg report wrong
(Agencies)
Updated: 2005-05-11 21:28
BEIJING - China has not changed its currency policy, the central bank said on
Wednesday, after financial markets were jolted by a report in the nation's top
newspaper that predicted the yuan would be revalued next week.
The People's Daily newspaper said on its online edition that a yuan
appreciation would be announced, possibly by widening the narrow band in which
it is allowed to trade against the dollar.
But China's central bank, the People's Bank of China, said the report, a
translation of a weekend news story, was wrong.
"There has been no policy change on the renminbi (yuan)," said a central bank
spokesman. "Some mistakes occurred in the translation."
The report, coming after repeated calls from the United States and other
countries for China to let the yuan appreciate, sent the dollar diving against
the yen and sent U.S. Treasuries prices into a brief fall.
"Clearly the market is pumped up about revaluation," said ABN AMRO bond
strategist Harvinder Sian. "Momentum about currency change is gathering pace."
Markets have speculated for months that the yuan will be allowed to
appreciate as part of China's first significant currency reform since the Asia
crisis of 1997/98 and there was a similar wobble two weeks ago when the yuan
briefly traded outside its authorized band.
That trade outside the razor-thin band of 8.2760 to 8.2800 per dollar was
blamed on a trading error.
"The People's Daily report is certainly more credible than most that we've
had recently, but I'm still not convinced they are going to do it," said Adrian
Foster, head of currency strategy at Dresdner Kleinwort Wasserstein.
TRANSLATION
While Washington argues the level of the yuan's trading band is too low,
making Chinese exports unfairly cheap, Beijing has resisted both diplomatic and
speculative pressure for a one-off yuan revaluation.
Chinese officials have pledged to push gradual reforms to make the exchange
rate more responsive to market forces.
An official for the People's Daily said the report was a translation of a May
7 news agency article.
The People's Daily had not cited a source for the information.
"The appreciation of the people's currency as wished for by the international
financial market will be announced to revaluate or expand the margins of its
exchange rate," the paper said.
The newspaper had said the announcement would come after a meeting next week
between the "U.S. financial minister" and an official from the Chinese central
bank.
The news agency report had attributed the prospects of a yuan appreciation to
market expectations.
It said estimates were for a yuan revaluation of 1.26 percent in one month
and 6.03 percent in one year.
The dollar fell half a yen after the initial report. Premiums on Chinese
non-deliverable forwards -- derivatives that investors use to bet on the future
value of the yuan -- also rose sharply.
The dollar at 1157 GMT was at 105.30/35 yen, down from 105.50 yen before the
report but up from the day's low of 104.92.
The yen, like several other Asian currencies, is often viewed as a proxy for
the yuan and frequently rises when yuan speculation heats up.
One-year NDFs priced in an appreciation of as much as 7.1 percent in the
yuan, compared with 5.9 percent earlier, data from broker Prebon Yamane showed.
After the central bank comments, the one-year premium fell back to 6.2 percent.
TREASURIES WOBBLE
U.S. Treasuries suffered because investors have worried that a yuan
revaluation would be accompanied by a decline in China's massive buying of U.S.
government debt.
"A knee-jerk reaction to China currency changes would be negative as China is
subsidising U.S. spending and if that suddenly stops it could have an impact,"
Sian said.
At 1114 GMT, the June T-note future was up 4/32 at 111-16/32. Earlier it fell
to 111-7/32 on the initial report.
The two-year note was little changed with a yield of 3.67 percent. The
10-year note was also little changed at 4.20 percent.
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