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The yuan soared to refresh a post-revaluation high yesterday following a rout of the United States dollar against major currencies.
The People's Bank of China set the central parity rate of the yuan at 6.8009 against the greenback yesterday, a post-revaluation high and up sharply from Monday's central parity of 6.8243.
The record high central parity rate didn't come as a surprise to Tommy Xie, an OCBC Bank economist.
"It's natural to see the central bank shoring up the central parity when the US dollar fell against major currencies overnight," he said.
The greenback lost nearly 2 percent against major currencies in global markets overnight.
The US government announced a set of extraordinary proposals including the creation of a US$700-billion troubled asset relief program to rescue the banking sector from the worst financial crisis since 1930s.
The rescue moves triggered concerns that US finances and financial institutions could be burdened further and lead to the US dollar sliding more.
The central bank set the central parity based on average weighted quotes from more than 10 market makers. The yuan has risen about 6.9 percent so far this year.
"The high central parity showed that the central bank has no intention to make a turnaround on the yuan policy," Xie said. "The movement of the greenback will be one of the key references for China to price the yuan."
The yuan ended at 6.8135 against the greenback on the China Foreign Exchange Trade System in Shanghai yesterday.
However, some economists, including Industrial Bank's chief economist Lu Zhengwei expected a turnaround in monetary policy in the later part of the fourth quarter, most likely in December, to fight the threat of an economic slowdown.
Stephen Green, a Standard Chartered Bank economist, lowered the short-term rating on the yuan from overweight to neutral.
Policy makers may shift to a slower nominal effective exchange rate appreciation path in the coming months, Green said.
"Following the recent bombshell by the central bank to cut interest rates, we expect policy maker bias on the yuan to shift soon from a fast NEER appreciation to a much slower pace," Green said earlier in a note.
The central bank cut lending rates for the first time in six years last Monday.
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