BEIJING, Aug 4: China’s central bank said on Thursday that it would make further adjustments to the yuan at an appropriate time, signalling that more changes to the currency would be forthcoming after a 2.1 per cent revaluation two weeks ago. However, any further revision to the yuan exchange rate would depend on the financial environment with reference to the basket of currencies that the yuan has been placed in, the central bank said in its second quarter report.

“The central bank will adjust the exchange rate floating band at the proper time according to market developments and the economic and financial situation,” the statement said. The People’s Bank of China pledged to maintain “a normal float” of the exchange rate and reiterated that it would also maintain the currency at a reasonable and balanced level.

It reiterated that over time it would explain to the markets the workings of the currency basket as well as reintroduce currency derivatives forwards and swaps to the inter-bank market to better provide risk management tools. China freed the yuan from an 11-year-old peg to the US dollar in favour of a trade-weighted basket of currencies, allowing the yuan to appreciate 2.1 per cent, but keeping foreign currency details on the basket murky.

The Chinese yuan closed at 8.1027 to the dollar on Thursday, its highest level since the yuan revaluation. China’s new managed float can in theory allow for a 0.3 per cent daily shift in either direction to what the market deems fair value.

International currency traders widely expect the yuan to appreciate by a total of 7.4 per cent by year-end, pressuring the People’s Bank of China to move the currency again or again face the economic pressures associated with speculative funds. In the second half of this year, the bank said that it expected the economy to maintain “stable and relatively fast growth” but added that the outlook for the export sector was uncertain due to rising trade frictions.

Meanwhile, consumer price inflation, which grew at 1.6 per cent in June and 1.8 per cent for the two previous months, is expected to fall further in the third quarter. Although that continues a trend that began in March, it forecast in the fourth quarter, the central bank said without providing any further forecasts. The bank set a CPI target of four per cent at the beginning of this year.

It said that investment in the coal, oil, electricity and transportation sectors — where bottlenecks have been hampering economic activity in recent years — will still maintain a high growth rate in the second half.

Full year money supply growth is expected at around 15 per cent, while new loan growth is expected at 2.3-2.5 trillion yuan, targets for 2005. It also said that it will maintain a “prudent” monetary policy and maintain the currency’s stability.

The report also noted that its strategy of flooding the inter-bank market with liquidity has driven domestic short-term rates below their overseas equivalents, and that this “has helped to reduce speculative capital inflows.”—AFP