Lower parity rate weakens yuan

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THE yuan weakened yesterday after China's central bank set the reference rate at a one-month low as the US dollar firmed on better-than-expected economic data.

The yuan dipped 0.04 percent to 6.2317 per dollar in Shanghai yesterday on the spot market, according to the China Foreign Exchange Trade System. The currency hit 6.2337 during trading, nearly the weakest since December 28.

The People's Bank of China yesterday set the central parity rate at 6.2881 per US dollar, the weakest since January 4. The yuan is allowed to trade at 1 percent on each side of the official reference rate daily.

The yuan weakened in line with a stronger US dollar after home prices rose in the US which also reported a surprisingly better growth in its service industry this week.

"The central bank may be lowering the yuan's reference rate in line with an international trend," said a Shanghai-based trader who declined to be named. "There will be room for further weakening of the yuan as demand for the US dollar may increase after the week-long Chinese New Year holiday."

China's financial markets will shut next week for the holiday.

On the offshore market in Hong Kong, the yuan was steady at 6.2158 per dollar, according to data compiled by Bloomberg News.

Also yesterday, Taiwan started offshore interbank trading of the yuan as the Chinese mainland aims to internationalize the currency and help cross-Strait economic ties.

The Shanghai branch of the Bank of China conducted the first 1.07 million yuan (US$172,000) transaction from Taiwan to Shanghai for a Taiwan-based tourism company, BOC said in a statement.

It followed an announce-ment last week that local banks on the island can accept deposits and lend in yuan after setting up clearing accounts at BOC's Taipei branch.

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