Yuan Forwards Are Little Changed as China Checks Currency Gains

Feb. 24 -- China’s yuan forwards were little changed, following a two-day drop, on speculation the central bank will refrain from allowing the currency to appreciate in the first half of the year.

The country’s top decision-making body this week reaffirmed a “proactive” fiscal policy and a “appropriately loose” monetary stance, the state-run Xinhua News Agency reported Feb. 22. The central bank on Feb. 12 ordered lenders to set aside more deposits as reserves for the second time in a month to help contain inflation, a measure that takes effect tomorrow.

“The government won’t change its stance of keeping a stable currency or raise interest rates until at least the third quarter before its economic recovery is reinforced,” said Liu Xin, an analyst at the Hong Kong unit of Bank of Communications Ltd., China’s fifth-biggest lender. The increase in the reserve ratio is “gradually taking effect,” he said.

Twelve-month non-deliverable yuan forwards were at 6.6645 per dollar as of 10:44 a.m., indicating bets the yuan will strengthen 2.4 percent in a year. In the spot market, the currency traded at 6.8273, according to the China Foreign Exchange Trade System.

Forwards are agreements in which assets are bought and sold at current prices for delivery at a later specified time and date. Non-deliverable forwards are settled in U.S. dollars.

China’s National People’s Congress starts its annual meeting in Beijing on March 5, when the legislature will review the government’s annual work report, including the fiscal budget target for this year.