Yuan's rise merits revision in forecasts

WITH the yuan continuing to appreciate and touching new records, economists have to revise their forecasts for a faster climb in the currency's value.

Standard Chartered Bank said in a report yesterday that it raised its forecast for the yuan to appreciate from 6.8 percent to 9.0 percent this year and seven percent in 2009.

"In recent days the spot rate for USD-CNY (US dollar-yuan) has been consistently lower, breaking with previous trends of higher spot rates," the report said.

The yuan yesterday closed at 7.2690 against the greenback in Shanghai. The Chinese currency opened at 7.2695 against the US dollar yesterday in Shanghai.

On the first trading day of this year, the yuan opened at 7.2996, the first time it cracked the historical 7.3 mark.

"The primary reason for our change of view is domestic inflation and the increasing disquiet it is causing senior policy makers," said Standard Chartered Bank in a report.

CPI rise

The consumer price index, the main gauge of inflation, rose 6.9 percent in November to hit a more than 10-year high.

The report said that as inflation is the target the bank sees a possibility the yuan will appreciate faster against the US dollar in the first half of 2008 in an attempt to get inflation under control before the summer.

"If the CPI doesn't start to fall by then, back below 4.0 percent year on year, then the pressure for appreciation will be stronger," the report said.

The central bank said it will use a multitude of monetary measures, including interest rates and foreign exchange, to curb excess liquidity this year.

The pace of the yuan's appreciation has picked up since October. The currency gained 2.3 percent in the last two months of 2007, culminating in a total appreciation of 6.87 percent for the whole of last year, higher than a forecast of three percent to five percent appreciation made by economists. The 2007 growth almost doubled the increase in 2006.