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SCMP Reporter

A day after the United States Federal Reserve  cut its target interest rate to near zero,  the yuan climbed 0.16 per cent to 6.8357  per dollar in Shanghai yesterday, its highest close this month.
Earlier in the day,  it touched 6.8250, the strongest since November 14.
'With the falling US dollar, the yuan's depreciation pressure is mitigating,' said Guotai Junan Securities analyst Lin Chaohui in Shanghai.
The People's Bank of China raised the reference rate for yuan trading by 0.12 per cent to 6.8353 yesterday, the biggest increase since September 23. The currency is allowed to trade by up to 0.5 per cent against the US dollar on either side of the so-called central parity rate.
The seventh consecutive increase of the reference rate suggested  Beijing would refrain from seeking a weaker domestic currency to spur exports, Mr Lin said.
Mainland exports have been slowing sharply  as a result of the global recession,  with November exports dipping 2.2 per cent from a year earlier, the first fall in seven years.
'I think the exchange rate will be caught in a narrow range in the short term. For the longer run, Beijing will probably keep the yuan appreciating gradually and moderately to help avoid large foreign capital outflows,' Mr Lin said.
A  strong yuan is  considered necessary for financial stability. Beijing has been increasingly concerned about speculative money outflows because this complicates its efforts to support the rapidly cooling economy.
However, a weak US dollar means greater devaluation risk to the mainland's swelling holding of US treasury bonds.
The mainland held US$652.9 billion in US Treasury bonds at the end of October, up 11.2 per cent from  US$587 billion a month earlier, when China became the largest US creditor ahead of Japan, according to official data released on Tuesday.
'The risk of asset depreciation is huge. China must stop buying US debt,' said Zhang Ming, a researcher with the Chinese Academy of Social Sciences, a top think-tank.
'China should take the chance to diversify its foreign reserves. As oil and commodities are at low prices in the global market, China should build up inventories now. Also, it should allow foreign companies to issue yuan-denominated bonds in China so that the exchange rate risk could be reduced,' said Mr Zhang.
The mainland had US$1.9 trillion foreign reserves at the end of September and the figure is expected to rise further since the trade surplus has been climbing.
A China Daily editorial  yesterday warned that the mainland would not keep lending money to the US economy indefinitely and the US should 'race against time' to undertake painful but critical reforms to revive its economy.
On Tuesday, the Ministry of Industry and Information Technology said  it planned to bolster inventories of 'important materials' among several measures to help the steel, metal and petroleum industries.
Chen Shuwei, vice-general manager of Beijing Orient Agribusiness Consultant,  said that Beijing, in a bid to protect domestic farmers,  would probably not take advantage of the low grain prices in international markets and allow substantial foodstuff imports.
Meanwhile, the US dollar declined to a 13-year low versus the Japanese yen yesterday.



Yuan shrugs off depreciatory pressure in wake of Fed rate cut