Yi Gang, the People's Bank of China (PBOC) vice governor, was quoted by the official Securities Times as saying that China's consumer price index and produce price index would see only moderate growth in 2010. China last week raised banks' reserve requirements by 0.5 percentage point, which guided market expectations the Chinese authorities would begin to tighten monetary policy.
On Tuesday, the central bank stepped up efforts to rid the financial system of excess cash by lifting auction yields on one-year bills, for the second week in a row. The People's Bank of China set the yuan's daily mid-point against the dollar at 6.8270 on Tuesday, only two-pips higher from Monday's 6.8272.
Spot yuan closed at 6.8274 against the dollar, little changed from the previous close of 6.8270 and in line with the central bank's mid-point. "We still focus on the mid-point," said a dealer at an Asian bank in China. "It moves only by a few pips every day which shows the central bank has no intention of allowing the yuan to appreciate for now."
Several dealers said they expected the yuan may move between 6.8250 and 6.8290 in coming days. China's commerce minister said on Tuesday reform of the yuan's exchange rate policy would be gradual, with exports likely to take a long time to return to pre-crisis levels.
A stable yuan will help the global economy recover after sliding into recession during the financial crisis, Chen Deming told a news conference after meeting his Indian counterpart. Premier Wen Jiabao also said China would take steps to deal with inflationary expectations. Rising price expectations add pressure on yuan appreciation in the long run, traders said.
Offshore, benchmark one-year dollar/yuan non-deliverable forwards (NDFs) rose slightly to 6.6110 bid late on Tuesday compared with Monday's close of 6.6040. Twelve-month yuan appreciation implied by NDFs fell slightly to 3.27 percent measured from the Chinese central bank's daily mid-point, compared with 3.38 percent implied at Monday's close.