Interest spread pushes yuan higher

The yuan's value to the dollar rebounded immediately in the wake of the European Central Bank's recent move to slash interest rates. With the balance of domestic and international interest rates now thrown off, the yuan is being pushed back on a path toward appreciation.

Since the start of the year, factors which had previously been supporting a weaker yuan have been losing their effect. In Europe, China's largest trading partner, plodding progress toward economic recovery has spurred steps to promote lending to local enterprises. Meanwhile, market-oriented reforms are raising interest rates in China, while signs of slowing economic growth mean that many of the country's banks are now reluctant to lend.

Monetary policy setters in China must stabilize the rate difference between domestic and foreign markets to minimize the prospects of the renminbi's unilateral appreciation. This will in turn create a stabler environment for structural economic reforms that can boost growth in the real economy.

http://www.ecns.cn/business/2014/06-13/118969.shtml