BEIJING, May 30 (Reuters) - The rapid appreciation of
China's yuan against the U.S. dollar may have overshot and will
not be sustainable, a former central bank official said in an
interview with state media Xinhua News on Sunday.
The yuan has gained 1.7% so far in May to trade at
three-year highs. It breached the psychologically important 6.4
per dollar level last week, but the pace of its rally has slowed
after regulators signalled concerns over strong one-way bets on
The People's Bank of China (PBOC) on Friday set the midpoint
rate of the yuan at 6.3858 per dollar, the strongest
since May 2018.
While China's economy has rebounded quickly from a
pandemic-induced slump early last year, the yuan's gains have
been largely chalked up to sustained weakness in the dollar.
Investors had increased their bets on further strength in
the Chinese unit after the PBOC appeared not to show discomfort
with recent gains. But big state-owned banks were seen buying
U.S. dollars early last week in a move seen as an effort to
temper fast yuan gains.
Sheng Songcheng, former director of the surveys and
statistics department at PBOC, said the overshot of the yuan
signals short-term speculation and is unsustainable.
"We will prevent short-term money flooding from pushing up
the yuan and diminishing the competitiveness of export firms,"
Chinese regulators had vowed to crack down on manipulation
of the forex market and said the yuan exchange rate cannot be
used as a tool to stimulate exports nor to offset the impact of
surging commodity prices.
Prices of key commodities including steel products and
copper had surged more than 30% since the start of the year,
denting corporate profits throughout the supply chain. Surging
raw materials costs have also raised worries about inflationary
pressures and their potential impact on monetary policy.
"The appreciation of the yuan will squeeze margins at export
firms, in particular the medium- and small-sized ones," said
Sheng, adding the rapid appreciation will also damage the
broader economy as companies would be distracted from their main
business and turn to speculation.
The PBOC-backed Financial News also warned on Sunday of the
potential factors that would lead to a depreciation of the yuan
against the dollar, including policy changes by the U.S. Federal
Reserve, a strong revival of the U.S. economy, control of the
COVID-19 pandemic and bursting of U.S. asset bubbles.
(Reporting by Muyu Xu and Beijing Newsroom; Editing by Kim