China Considering Raising Yuan Exchange Rate by 1%

“China may widen the yuan’s trading band in the “next few weeks” as policy makers favor a more flexible exchange rate to combat inflation, according to Standard Chartered Plc.

The range may be widened to allow the currency to trade as much as 1 percent on either side of a daily fixing set by the People’s Bank of China, currency strategists Callum Henderson and Robert Minikinwrote in a research note today. It was last widened to 0.5 percent from 0.3 percent in May 2007. The yuan is allowed to swing as much as 3 percent on either side of reference rates versus the euro, yen and Hong Kong dollar.

“A wider trading band could create the conditions for modestly faster appreciation near-term to temper persistent inflation,” Henderson and Minikin wrote in the report. “Another big one-off revaluation looks unlikely, as officials have ruled this out and because the global economy is slowing.”

Government data due June 14 is expected to show inflation accelerated to 5.5 percent last month from 5.3 percent in April, according to the median forecast in a Bloomberg News survey of economists. That would be the fastest pace since July 2008. A stronger yuan helps limit price gains by making imports cheaper.”

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