Yuan Falls Most Since End of Peg

China's yuan declined by the most since a dollar peg ended in 2005 after the Politburo signaled a shift in focus to maintaining economic growth, fueling speculation the government will slow gains to aid exporters.

The Politburo, the Communist Party's top decision-making body, wants to cool inflation and maintain ``steady and relatively fast'' expansion, state-run China Central Television reported on July 25. The yuan's 6.8 percent advance this year is eroding the value of overseas sales as manufacturers contend with the slowest domestic growth since 2005.

The yuan fell 0.32 percent to 6.8410 per dollar in Shanghai as of 5:30 p.m., from 6.8189 late last week, according to the China Foreign Exchange Trade System. The currency has climbed 0.25 percent versus the dollar in July.

The goal of achieving stable growth has been made more difficult due to uncertainties and instabilities of the global economy, CCTV reported, citing the Politburo. Gross domestic product rose 10.1 percent in the second quarter from a year earlier, after expanding 10.6 percent in the first.

China will keep the yuan stable in a ``self-initiated, controllable and gradual manner,'' the People's Bank of China said in a statement on its Web site yesterday, after the monetary policy committee's second-quarter meeting. The statement didn't reiterate the central bank's pledge to ``increase the exchange rate's flexibility,'' included since the third quarter of 2007.

The central bank set a weaker daily reference rate for the yuan today at 6.8277. The yuan is allowed to trade by up to 0.5 percent against the dollar either side of the so-called central parity rate.

Yuan Falls Most Since End of Peg

TradingEconomics.com, Bloomberg
7/28/2008 10:11:36 AM