China has "limited scope" for yuan depreciation against dollar: economist
3/12/2008 17:35
China has "very limited scope" to keep its currency, the yuan,
depreciating against the US dollar in the coming year, UBS Securities said
today.
The yuan, or Renminbi (RMB), weakened to 6.8870 against the US dollar
on the over-the-counter market yesterday, declining by the 0.5 percent daily
limit for a second day. The RMB is allowed to trade by up to 0.5 percent against
the greenback on either side of its central parity rate.
This has sparked
speculation that China was shifting its policy on the exchange rate to allow the
yuan's depreciation to help out its struggling exporters to avert economic slump
and save jobs.
"We think it is too early to see the latest move as a signal
of a significant change in China's exchange rate policy," Tao Wang, Head of
China Economic Research at UBS Securities, wrote in a research note.
The
central parity rate of the RMB was set at 6.8502 to the dollar, compared to
6.8527 yesterday and reversing from weakening in the reference rate for four
days.
As the United States, European Union, and Japan fall deeper into
recession, the yuan's depreciation would "likely invite criticism that China is
adopting a beggar-thy-neighbour type of policy, leading to possible
protectionist responses from China's major export markets", Wang said.
"Its
depreciation could also lead to a round of competitive devaluation in
neighbouring economies, which would result in little material gains for China,"
she stated.
The economist forecasted the exchange rate of the yuan to the US
dollar would move toward 7.0 by the end of 2008, but it could advance to 6.8 at
the end of 2009 unless the dollar strengths by more than 10 percent against the
currencies in China's main trading partners.
The yuan had for months remained
steady against the dollar until the recent retreat. But it has appreciated by
about 10 percent against the trade-weighted basket of currencies since August,
as the dollar strengthened significantly in recent months against other major
currencies, said Wang.
The appreciation of the effective exchange rate over
the last four months is as large as the appreciation of the previous four years
when the yuan appreciated steadily against a weakening dollar.
She added that
yuan appreciation is likely to hurt the already bleak export prospect in China
next year.
Xinhua
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