HONG KONG — The Chinese central bank on Wednesday set a key rate for the renminbi at a level that appeared designed to signal that Beijing is engineering only a very gradual appreciation of the Chinese currency against the U.S. dollar.
The daily reference rate for the renminbi has become a key focus of attention in the financial markets since Beijing announced on Saturday that it would allow more currency flexibility, as analysts try to gauge how rapidly, and when, the government will allow the currency to gain in value against the dollar — a key issue in U.S.-Chinese relations.
On Wednesday — the third trading day since the start of the more flexible currency regime pledged by Beijing — the central bank set the reference rate at 6.8102 per dollar. That was 0.18 percent weaker than Tuesday’s fixing, but 0.05 percent firmer than Tuesday’s closing level, of 6.8136 per dollar. During the course of trade Wednesday, the renminbi strengthened only by a hair to close at 6.8130 per dollar.
The daily moves in the renminbi since Monday — both upward and downward — have been minimal compared to the fluctuations that are common in more freely traded currencies. But they have been large in relation to the very tight range that Beijing has imposed in the past on the currency, which is commonly known as the yuan.
Prior to their pledge of more flexibility on Saturday, the Chinese authorities had inofficially pegged the renminbi at around 6.827 to the dollar, permitting only the tiniest of moves within a trading band that in theory allowed for fluctuations of up to 0.5 percent above and below the daily reference rate.
Since Monday, the magnitude of the swings has been much larger — though still within the plus or minus 0.5 percent band.
Despite the mixed signals sent this week, analysts widely believe that the overall trend is for mild and very gentle appreciation of the renminbi against its U.S. counterpart.
In a note on Wednesday, analysts at ING said they were reiterating their view that the pace of appreciation “will be very slow for the next several months.” They forecast that the renminbi would be at 6.68 to the dollar one year from now.
At the current level, the renminbi remains much weaker against the U.S. currency than many economists and policy makers would like.
Many argue that the level of the past two years — implemented as part of the Chinese authorities’ efforts to bolster exports during the global economic crisis — gave Chinese manufacturers an unfair advantage when they exported abroad.
The announcement Saturday, just days before a meeting of Group of 20 leaders in Canada this week, could ease some of the tension in the currency debate and shift the focus of the meeting toward other issues, like Europe’s debt troubles, analysts believe.
But Beijing is also balancing domestic economic issues in its carefully crafted and slow move on the currency front.
The authorities are wary of adding any added pressures on businesses, which already face a range of pressures.
Within the last few weeks, labor unrest has intensified across the country, raising the prospect of hefty wage demands.
At the same time, a sharp decline in the euro this year has made Chinese goods more expensive for consumers in Europe, which is China’s biggest trading partner. The euro’s fall, and the effect of any widening of Europe’s debt woes, are likely, in the short term, to have a larger impact on the Chinese economy than the renminbi’s slight moves, many economists believe.
China will scrap tax rebates to exporters of dozens of commodities, including key steel products, corn starch, rubber products and ethanol, the finance ministry has said.
The decision, released Tuesday, disappointed steel mills, which were hoping for more government support as they come up against potentially calamitous margin pressures in the third quarter as well as a further decline in exports as a result of the rising renminbi.
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