Ward off capital risks

The yuan keeps rising, inter-bank rates have shot up, and foreign exchange purchases have slumped, such conflicting trends have caused worries among puzzled China watchers. But are such fears justifiable?

The yuan hit new highs on Monday in terms of the official central parity rate, rising to 6.1598 against the US dollar before edging down on Tuesday. It has risen by more than 2 percent since the start of this year.

While the economic fundamentals are out of line with the currency appreciation momentum, the fast pace of yuan revaluation is also in contrast to the money market conditions. The interest rates that Chinese banks charge each other for short-term loans unexpectedly surged recently, indicating a sudden liquidity shortage that demands central bank intervention.