China to delay yuan move to third quarter: Stanchart

SINGAPORE (BestGrowthStock) – China is likely to wait until the third quarter of 2010 to unleash the yuan from a dollar peg due to the ongoing financial market turmoil, the Standard Chartered Bank said on Monday.

“China is unlikely to de-peg the yuan anytime soon due to the following factors: financial-market volatility and deteriorating sentiment toward the global recovery, and the recent sharp appreciation of the yuan real effective exchange rate,” analysts at the bank said in a note.

The bank had previously expected Beijing to let the yuan resume its gradual appreciation, which came to a halt in mid-2008 and has since been fixed near 6.83 per dollar, in May.

China needs to wait for some stabilization in global markets and see a sustained trade surplus to justify a yuan de-pegging, while growing domestic inflation risks and foreign political pressure would pave the way for such a move, they said.

The euro zone’s debt crisis had led to an accelerated rally in the yuan’s real effective exchange rate, with yuan rising about 7 percent against the euro since 19 April.

The euro zone accounts for around 18.4 percent of China’s total trade, they said, adding that the yuan had also gained against the South Korean won and the Taiwan dollar.

“We maintain our view that when China does move, it is likely to move very gradually,” the analysts said, expecting the yuan to rise to 6.82 per dollar by the end of September and 6.80 by the end of 2010.

The Chinese authorities may eventually widen the yuan’s daily trading band and shift to a system under which the yuan is managed against a basket of currencies, they added.

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(Reporting by Kevin Yao; Editing by Tomasz Janowski)

China to delay yuan move to third quarter: Stanchart