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RMB appreciation room limited despite recent strengthening: experts

(Xinhua)

08:19, October 25, 2012

BEIJING, Oct. 24 (Xinhua) -- China's Renminbi (RMB), or the yuan, has strengthened against the U.S. dollar in the past month, but room for the currency to further appreciate is limited in the long run, experts have said.

The yuan closed at 6.2480 against the U.S. dollar on the spot market on Tuesday, the highest level since 2005, when China unpegged its currency from the U.S. dollar to adopt a floating exchange rate regime tied to a basket of foreign currencies.

The yuan's value has strengthened 1.6 percent in the spot market since July, according to calculations by China International Capital Corporation Ltd.

Experts attributed the appreciation of the yuan against the greenback to the U.S. Federal Reserve's quantitative easing policy and emerging signs that China's economy is stabilizing.

Three round of quantitative easing (QE3) launched in the United States since mid-September have injected dollar liquidity into the market and drives up the value of the yuan, said Zhang Ming, a finance expert at Chinese Academy of Social Sciences.

Improvements in China's foreign trade and economic outlook have also helped push up the currency, according to Zhang.

China's exports rose 9.9 percent year on year to 186.35 billion U.S. dollars in September, accelerating from the 2.7-percent growth in August and bringing the trade surplus up to 27.67 billion U.S. dollars.

The ongoing U.S. presidential election, during which candidates have pressed for the yuan's appreciation, have also affected the market, Zhang added.

However, there is limited room for the yuan to strengthen further in the longer term, as lingering European debt woes may continue to mire China's exports, said Cao Honghui, an expert with China Development Bank.

A report released by China Merchants Securities noted that there are still concerns on China's economy, and pressures of capital outflow from the country.

"Therefore, it is unlikely that the yuan will appreciate notably," the report predicted.

In contrast to spot trading, the yuan's central parity rate against the U.S. dollar has weakened for five consecutive trading days by 60 basis points to stand at 6.3081 on Wednesday.

In China's foreign exchange spot market, the yuan is allowed to rise or fall by 1 percent from the central parity rate each trading day, which is based on a weighted average of prices before the opening of the market.

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