China’s yuan steady after CPI rises but deflation pressure remains

SHANGHAI, March 11 (Reuters) – China’s yuan held steady against the U.S. dollar on Monday after stronger-than-expected Chinese inflation data, with investors still wary about deflationary pressure and looking for further stimulus measures from Beijing. Consumer prices rose in February for the first time in six months and exceeded economists’ forecast, official data showed on Saturday, lifted by spending linked to the Lunar New Year holiday. Factory-gate prices continued their year-and-a-half downward trend, however, and analysts said it was too early to dismiss the threat of deflation. The Consumer Price Index’s (CPI) 0.7% year-on-year rise reflected in part the shift in the date of the week-long New Year holiday, and markets should not make big calls on such distorted readings, said Ting Lu, chief China economist at Nomura. The trade-weighted CFETS yuan index against a basket of currencies fell on Monday to 98.62, the lowest since Jan. 17, according to Reuters estimates based on official data. China’s parliament, the National People’s Congress (NPC), will close its annual session on Monday, leaving the market still seeking more stimulus to revive the economy. “We view the fiscal package announced at the NPC as insufficient to meet the ambitious growth target of around 5% this year, given dissipating low-base effects and the deep housing slump,” analysts at Barclays said. Market participants will be watching a key policy rate decision due this Friday. Prior to the market’s opening, the People’s Bank of China set the yuan’s midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.0969 per U.S. dollar, the firmest level in two months. Spot yuan opened at 7.1864 per dollar and was changing hands at 7.1897 at midday, 21 pips weaker than the previous late session close. The global dollar index was little changed at 102.71 compared with the previous close of 102.712. The offshore yuan was trading 85 pips weaker than the onshore spot rate, at 7.1982 per dollar. The yuan market at 0344 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 7.0969 7.0978 0.01% Spot yuan 7.1897 7.1876 -0.03% Divergence from 1.31% midpoint* Spot change YTD -1.28% Spot change since 2005 15.12% revaluation Key indexes: Item Current Previous Change Thomson 0.0 Reuters/HKEX CNH index Dollar index 102.713 102.712 0.0 *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 7.1982 -0.12% * Offshore 7 1.38% non-deliverable forwards ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC’s official midpoint, since non-deliverable forwards are settled against the midpoint. . (Reporting by Shanghai Newsroom; Editing by Edmund Klamann)

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