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��Home>>Business
RMB facing intense appreciation pressure
www.chinanews.cn 2006-03-22 08:55:49
Chinanews, Mar 22 - An analyst in China's financial sector lately pointed
out that the RMB has entered a "period of intense appreciation pressure".
The median trading price of the US dollar versus the RMB dropped below
8.03 for the first time in twelve years last week, setting a new low
after China started to implement a managed floating RMB exchange rate
regime. To date, the RMB has appreciated by 3% against the US dollar.
Forex analyst Tao Xingyi from Hong Kong's Success Universe Group said
that the main factors feeding the expectation of RMB appreciation were US
senators' visit to China and Chinese President Hu Jintao's visit to the
US this April.
Two US senators who severely criticized China's foreign exchange rate
policies arrived in Beijing on March 19th. Their anti-China trade
proposal will come to a vote on the senate floor on March 31. According
to this proposal, if China refuses to let the RMB appreciate by large
margins, the US would impose a 27.5% punitive tariff on all Chinese
products.
Tao said that besides political factors, the relatively big fluctuations
in the international forex market have also intensified the pressure on
the RMB to appreciate. "Fluctuations of the RMB exchange rates
increasingly reflect demand in the market. The magnitude of these
fluctuations will undoubtedly get bigger and bigger. Any reason, however
small, will rock the RMB." Tao said.
Tao analyzed that the US dollar versus the RMB exchange rate has been
falling an average of four to five basis points each day since last year.
A simple estimation will show that the US dollar exchange rate against
the RMB is expected to drop below 8 in three months. If the central bank
launches reform measures in the future, for example, to widen the daily
floating band of the RMB versus the US dollar, the RMB will appreciate at
an ever faster pace.
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