Yuan free to rise five per cent against dollar in 2011

IN a bid to tackle its problematic inflation, China will let the yuan rise by around five per cent against the dollar this year, it was revealed yesterday.

However, any appreciation will do little to narrow China’s trade surplus with the US, a Chinese government official warned.

The trade imbalance is a constant source of irritation between the two countries.

“Yuan appreciation will make imports cheaper to reduce the impact of rising commodity prices, providing relief from inflationary pressure,” a Chinese language newspaper reported.

The yuan is expected to be about three per cent higher in a year’s time, according to pricing in offshore forwards markets.

China let the yuan rise 3.6 per cent in 2010. But traders expect the yuan to appreciate about two per cent in the first quarter of 2011 alone.