Markets

Yuan forwards up on Singapore move

By Judy Chen and Belinda Cao (China Daily)
Updated: 2010-04-15 09:42

Market speculation grows on RMB appreciation after city state revalues

SHANGHAI: Yuan forwards strengthened for the first time in four days after Singapore unexpectedly revalued its currency, spurring speculation the move will prompt China to allow appreciation.

The Monetary Authority of Singapore said on Wednesday it will undertake a de-facto one-off revaluation of its currency, anticipating a pick-up in inflation.

A Chinese government report on Thursday may show the nation's economy expanded 11.7 percent in the first quarter of this year, the fastest pace in almost three years, according to a Bloomberg News survey.

"The market is probably speculating China will follow Singapore in letting the currency rise," said Liu Xin, an analyst at the Hong Kong branch of Bank of Communications Ltd, China's fifth-biggest lender. "I don't think China will revalue the yuan in one step. It's more likely to be a gradual appreciation."

Twelve-month non-deliverable forwards climbed 0.2 percent to 6.6245 per dollar as of 3:55 pm in Hong Kong, reflecting bets the currency will strengthen 3 percent from the spot rate of 6.8258, according to data compiled by Bloomberg.

China has pegged its currency at about 6.83 against the dollar since July 2008, purchasing the greenback and selling the yuan to mop up foreign-exchange inflows and keep the exchange rate from appreciating.

The nation puts the dollars into Treasuries, making China the biggest creditor to the US with holdings of $889 billion as of January. The government reported this week that foreign-currency reserves rose to $2.44 trillion last month, the largest in the world.

CPI outlook, bonds

Government bonds with maturities of less than three years gained on speculation that inflation slowed last month, while a drop in bank lending signaled there may be more cash available to invest in debt.

Consumer prices may have climbed 2.6 percent from a year earlier, according to the median estimate of 26 economists surveyed by Bloomberg News. Prices rose 2.7 percent in February, the fastest pace in 16 months. The statistics bureau is due to release the figure on Thursday.

"Bond yields retreated as market rumors indicated the inflation rate for March may fall below most people's estimates to around 2.4 percent," said Xie Xin, a fixed-income trader with Industrial Bank Co Ltd in Shanghai.

"Banks' lending is good for bolstering demand for bonds," Xie said.

The yield on the 2.23 percent note due in March 2013 dropped one basis point to 2.41 percent, and the price of the security gained 0.03 per 100 yuan face amount to 99.50, according to the National Interbank Funding Center data. A basis point is 0.01 percentage point.

China's banks extended a less-than-estimated 510.7 billion yuan ($74.8 billion) of new loans last month, compared with 700 billion yuan in February and the median forecast of 709 billion yuan in a Bloomberg survey. The government aims to cut loans by 22 percent to 7.5 trillion yuan this year.

The finance ministry sold 28 billion yuan of 20-year bonds on Wednesday at a yield of 3.96 percent, two basis points less than forecast by traders and analysts. The sale drew bids for 1.9 times the amount on offer, compared with an averaged 1.7 for government-debt sales this year.