Parity rate for yuan against dollar climbs

The central parity rate for the yuan against the US dollar rose to 6.8203 yesterday, the largest daily rise in seven weeks.

The daily mid-point, set by the central bank before trading, climbed 0.37 percent from Friday's 6.8458. But the yuan then weakened to 6.857 a dollar at 5:30 pm in Beijing yesterday, according to China's Foreign Exchange Trade System.

"The higher mid-point, which in theory contradicts the interest rate cut, implies the central bank wants to stabilize the yuan's exchange rate," Liu Dongyuan, a Shenzhen-based foreign exchange analyst with China Merchants Bank, said. "A drastic depreciation may lead to a capital outflow."

The central bank lowered the one-year lending rate to 7.2 percent from yesterday.

The yuan has gained against the US dollar by about 20 percent since China decided to scrap its peg to the US dollar in 2005. Over the past three years, there have been constant worries that the appreciation has attracted an influx of hot money, which has contributed to bubbles in China's stock and property markets.

But now, analysts warn there is a risk of rapid capital outflow, as the yuan's appreciation appears to be coming to an end and local real estate and share market prices decline.

Also yesterday, the one-year dollar/yuan NDFs (non-deliverable forwards) hit a fresh year-high of 6.8210 from Friday's close of 6.7500. The NDFs' latest level implies the yuan will depreciate against the dollar by 0.01 percent over the next 12 months from yesterday's spot mid-point of 6.8203. It was the first time that one-year NDFs have implied yuan depreciation since September 2003.