samyieevans: China?s yuan nearing fair value: PBOC?s Zhou

Tuesday, 13 March 2012

China?s yuan nearing fair value: PBOC?s Zhou

By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) ? China?s central bank governor said Monday the yuan was approaching fair value against foreign currencies, while also pointing out it was too early to tell if the nation?s trade deficit in February was the start of a important trend.

People?s Bank of China Gov. Zhou Xiaochuan told reporters in Beijing that market forces were playing a bigger role in determining the exchange rate, in keeping with the central bank?s long-term policy objective.

He added that as China?s currency approaches an equilibrium exchange rate, the central bank will gradually pare back its intervention in the foreign exchange market.

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The U.S. dollar /quotes/zigman/4869230/sampled USDCNY +0.2013% , having risen 0.4% against the Chinese currency so far this year, is currently fetching about 6.32 yuan.

Zhou also said there was insufficient data to conclude much from China?s trade deficit in January and February, adding that the markets shouldn?t draw conclusions until more data was available.

Data released on Saturday showed China posted a trade deficit of $31.48 billion in February, following a trade surplus of $27.28 billion in January, resulting in a cumulative negative trade balance for the first two months of the year. Read full story on February trade balance.

Also speaking during the same press briefing, PBOC Vice Governor Hu Xiaolian said China would accelerate interest rate reforms during the current five-year plan.

Hu said however that certain conditions such as the setting up of a system of deposit insurance was needed before further rounds of interest-rate liberalization.

Also commenting on interest rates, meanwhile, Zhou said deposit rates on savings accounts at Chinese banks were generally positive and had dropped into a negative territory for short periods when inflation was high.

Zhou also said he was worried that lifting interest rates could attract inflows of speculative capital into China.

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