The People's Bank of China on Wednesday set the daily reference rate of the yuan against thedollar at 6.1980, the highest in 19 years since China unified the official and market exchangerates at the end of 1993.

The daily fixing ofthe yuan rose 1.41percent since thebeginning of theyear against thedollar, as indicatorsshow that capital flows into the world's second-largest economy accelerated in recent months.The yuan is allowed to trade within 1 percent in each direction around the daily reference rate.

 

Analysts have forecast continuous appreciation pressure on the yuan as major economiesannounced a new round of monetary easing. On Monday, the central bank of Australia said itwill cut interest rates by 25 basis points, following the steps of the European Central Bank andthe Indian central bank.

 

China has seen four straight months of net foreign exchange purchases among the centralbank and commercial lenders, which suggests continuous capital inflows.

 

The central bank data showed that banks brought in nearly 236.3 billion yuan ($38.25 billion)worth of foreign exchange in March on a net basis, boosting the total yuan holdings forpurchasing foreign currency to nearly 27.1 trillion yuan.

 

Apart from international "hot money" inflows, the rising willingness of Chinese companies,especially property developers, to sell dollar-denominated bonds in overseas markets alsocontributed to increasing cross-border money inflows.

 

Expectations of the yuan's appreciation have also strengthened as China's band-wideningdiscussions have been rekindled following recent comments from PBOC officials indicating that the yuan trading band will be further widened "in the near future". 

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