Yuan stands firm amid emerging market woes

BEIJING - The Chinese yuan stood firm amid fluctuations in some emerging economies' monetary markets as tightening monetary policy in developed countries put them to a test.

Currencies in emerging economies plummeted on Monday over fears about the US Federal Reserve's move to continue tapering stimulus and tightening credit conditions in China.

The Brazilian real tumbled to its weakest level in five months while the Turkish lira fell by 2.7 percent to hit an all-time low in its foreign exchange rate against the US dollar.

The emerging markets sell-off followed last week's abrupt devaluation of the Argentine peso, exposing the challenges some countries face as central banks in the developed world tighten monetary policies.

Although the US Fed's stimulus tapering triggered the market jitters, the underlying problem is the poor economic performance and potential of emerging markets, said Zhao Qingming, a financial professor with the University of International Business and Economics.

High inflation, widening international balance of payments deficits and overreliance on foreign investment dampened investors' confidence and accelerated capital outflow in emerging markets, and the pressure may continue as the US Fed's stimulus tapering has just begun to bite, Zhao added.

In the long run, emerging markets should speed up economic restructuring to wean themselves off their heavy reliance on investment from developed economies, said Shao Yu, chief economist with the Orient Securities Co Ltd.

Shao advised emerging economies to focus more on boosting domestic consumption and breeding new growth momentum through innovation to shore up global competitiveness and resilience.

China's yuan bucked the downward pressure as it has remained stable since the start of the year. Analysts attributed the yuan's resilience to China's mild inflation, stable growth, partially open capital account and rich foreign exchange deposits.

China's central bank said in early January that it would continue to take a prudent monetary policy to maintain stable growth of monetary credit and social financing.

The Chinese yuan appreciated by 3 percent against the US dollar in 2013, beating market expectations at the beginning of last year and nearing the six-to-one threshold.

J.P. Morgan China Chief Economist Zhu Haibin said he expects the Chinese yuan to maintain modest appreciation against the US dollar in 2014 and reach 5.95 at the end of the year.

In addition, a widening of the yuan's daily trading band against the US dollar to 2 percent from 1 percent and a reduction in central bank intervention in the foreign exchange market can be expected as part of China's financial reform package, Zhu added.