* PBOC reiterates it will keep yuan basically stable
* U.S. Treasury urges faster yuan appreciation
* Yuan set to continue rising, possibly at faster pace
* Yuan at 6.4933, up 5.12 pct since depegging
By Lu Jianxin and Jacqueline Wong
SHANGHAI, May 4 The yuan closed slightly
higher against the dollar on Wednesday as the Chinese and
U.S. administrations reiterated their positions regarding the
value of the two countries' currencies ahead of their top-level
talks in Washington next week.
In a quarterly monetary policy report late on Tuesday, the
People's Bank of China reaffirmed that the government will keep
the yuan's exchange rate basically stable - a phrase that
implies yuan appreciation against the dollar will be gradual and
controlled in line with China's economic conditions.
U.S. Treasury Secretary Timothy Geithner said on Tuesday
that China is starting to let the yuan rise more rapidly to curb
inflation but needs to move even more swiftly toward a
market-driven exchange rate. [ID:nN03126290]
Dealers said these remarks ahead of the U.S.-China Strategic
and Economic Dialogue next week appear routine, but added that
U.S. pressure for China to let its currency appreciate has
significantly eased this year compared with last year.
"We don't expect the latest dialogue to give much play to
the yuan issue," said a trader at a U.S. Bank in Shanghai. "The
(U.S.) administration is realistic in handling the currency
issue. With a conspicuous lack of congressional pressure this
year, it is expected to be much more polite and more
Still, the PBOC has guided the yuan to a slew of record
highs this year, with the currency rising by 0.9 percent against
the dollar in April, accelerating from 0.4 percent in March, at
a time when the dollar sank to three-year lows against a
basket of currencies.
Policymakers in Beijing have made it clear they will deploy
the currency as a weapon to fight inflation, which hit a
32-month high of 5.4 percent in March, partly boosted by surging
global commodity prices.
As there are few signs of a reversal in the weak dollar and
surging commodity prices, the PBOC may continue to let the yuan
edge higher, possibly at a faster pace to rein in inflation,
TEMPORARY PBOC CAUTION
Reflecting caution over rising anticipation of yuan gains
ahead of the dialogue, the PBOC set the yuan's daily mid-point
at 6.5013 against the dollar on Wednesday, slightly weaker than
The central bank uses the mid-point to express the
governments' intention for the yuan's movements.
Spot yuan closed at 6.4933 versus the
dollar, up marginally from Tuesday's close of 6.4968. It has now
appreciated 5.12 percent since it was depegged from
the dollar in June 2010, and 1.48 percent since the
start of this year.
Offshore, one-year non-deliverable forwards (NDFs)
were bid at 6.3280 at midday, up from 6.3150 at
the previous close. Their implied yuan appreciation in a year's
time fell to 2.73 percent from 2.95 percent.