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The Chinese currency reached its strongest level against the dollar in three years, and posed a challenge to Beijing as it seeks to balance the country’s export demand with commodity prices.
The ground-traded renminbi gained 0.2 percent on Tuesday to reach the new dollar Rmb6.4046, the highest point it has had since June 2018. Meanwhile, the CSI 300 in the listed country of Shanghai and Shenzhen had the best day since July, at 3 cents.
The Renminbi has gained more than 10 percent in the past year, driven by Covid-19’s economic rebound from China. pandemic and foreign capital flows into the country.
But the rise in the currency is a serious problem for policymakers in China, as it is linked to the impact of rising commodity prices, the risk of asset bubbles and signs that growth is losing steam. Quarterly GDP it is only 0.6 percent spread in the first three months, below expectations.
“The PBoC is aware of the risk of gaining renminbi appreciation given to China [slowing] boosted growth in the first quarter, “said Ken Cheung, head of Mizuho Bank’s Asia FX strategy.
In recent days, the People’s Bank of China has sent mixed messages about the country’s currency. On Friday, in an editorial that was later deleted, one of his officials said the central bank would have to let the renminbi rise to counter the highest commodity prices.
PBoC Vice Governor Liu Guoqiang went on to say that the exchange rate would be “stable” and would affect supply and demand and international market conditions, according to comments posted on the bank’s website on Sunday.
The Chinese government has been concerned about rising commodity prices, which in April led to a three-year rise in Chinese plant prices, raising the possibility of higher consumer price inflation.
Comments on the renminbi have followed a new crackdown by the government against cryptocurrencies, which last week pushed for extreme volatility in trade.
After getting a record earlier in May, iron prices fell on Monday Beijing has warned of “excessive speculation” after saying it will tighten commodities and monopolies. The state council headed by Prime Minister Li Keqiang said last week that measures should be taken to ensure that producer prices are not targeted at consumer prices.
A stronger Chinese currency would make it cheaper for industrial producers in the country to buy raw materials, but it usually hurts exporters. The country’s GDP growth returned to pre-pandemic rates in the fourth quarter, driven by strong industrial production and exports, although domestic consumption lagged on a broad recovery.
Political leaders have been on the lookout for the risk of asset bubbles after easing major lending rates last year. Guo Shuqing, the country’s main regulatory bank, earlier this year has warned of bubbles in international markets and the Chinese property sector.
Interest rates have not increased but a signs have appeared gradually tightening credit conditions in the country.
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