THE yuan will stabilize after improvements in recent economic data and the bottoming out of domestic prices, domestic media said yesterday.

China’s falling interest rates have effectively stimulated market demand and supported the economic recovery, said the Financial News, a paper backed by the People’s Bank of China.

“The exchange rate is a reflection of the overall economy, and internal and external factors,” the newspaper said in a commentary.

“With continued improvements in internal and external fundamentals, the yuan exchange rate is stabilizing on a firmer footing.”

A string of economic data including August credit lending growth, factory output and retail sales showed the world’s second-largest economy was picking up steam.

China’s consumer prices have returned to positive territory in August while factory-gate price declines slowed.

“With domestic prices showing upward momentum and the dollar nearing the end of its tightening cycle, yield differentials between the United States and China are expected to narrow, and the yuan will show a positive upturn after bottoming out,” the newspaper said.

In the meantime, the yuan has bounced 0.9% to the dollar since it touched a 16-year low earlier this month.

The central bank has persistently set firmer-than-expected daily fixing to cap the downside room in the yuan, and it cut the amount of foreign exchange banks must set aside last week to slow the pace of yuan depreciation. (SD-Agencies)