U.S. Rate Cut Would Raise Pressure on Yuan, China Official Says

U.S. Rate Cut Would Raise Pressure on Yuan, China Official Says
By Helen Yuan and Allen T. Cheng
Nov. 25 (Bloomberg) -- Federal Reserve interest rate cuts next year would put pressure on China's yuan to revalue, a Chinese central bank official said today.
``If the Federal Reserve lowers rates in 2007, it definitely would pressure the yuan to revalue further,'' Wang Yu, a director of the financial market division of the People's Bank of China, said at a steel conference in Shanghai today. ``There is the possibility that the Fed may lower rates next year.''
The yuan has risen 3.3 percent since China revalued the currency by 2.1 percent in July 2005. The currency last week made the biggest weekly gain in two months, closing at the strongest since the peg to the dollar was scrapped, on speculation China is allowing faster appreciation before a visit by U.S. Treasury Secretary Henry Paulson.
Fed policy makers voted on Oct. 25 to leave the benchmark lending rate at 5.25 percent for the third straight meeting. Officials are trying to tamp down inflation gradually without accelerating a decline in housing markets.
The U.S. blames an undervalued yuan for a widening trade deficit and the loss of American manufacturing jobs.