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China's yuan unlikely to appreciate sharply in 2013 (2)

(People's Daily Online)

16:24, January 09, 2013

Yuan to maintain two-way fluctuations and moderate appreciation

Experts believe that the yuan's exchange rate will maintain its moderate upward trend this year as the central bank will continue to implement a prudent monetary policy and the Chinese economy will continue to pick up. Two-way fluctuations will remain the most significant feature of the yuan's exchange rate for some time to come.

Liu Ligang, the Australia and New Zealand Banking Group's chief economist for greater China, said that the yuan has appreciated 25 percent against the U.S. dollar nominally over the past seven years, and the real rate of appreciation is 30 percent.

The yuan's exchange rate is close to equilibrium level, and is unlikely to continue to rise sharply. The yuan is expected to appreciate only 1.5 percent in 2013.

As the yuan's exchange rate is close to equilibrium level, it will be normal to see the alternation of appreciation and depreciation expectations as well as increasing yuan flexibility. Lian noted that the yuan's exchange rate will be basically stable for a long time with two-way fluctuations and moderate appreciation.

On one hand, the stabilizing Chinese economy will support the yuan's appreciation trend. Lian said that the yuan is bound to further appreciate due to the rapidly increasing productivity, expanding trade surplus, prudent and relatively tight monetary policy, huge foreign exchange reserves, and the differences between the return on domestic and foreign investment.

On the other hand, foreign trade and funds outstanding for foreign exchange are witnessing slow growth, and global quantitative easing involves considerable risks. In order to ensure domestic employment and economic stability, China will only allow limited yuan appreciation.

【1】 【2】

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