Published: Sun, May 28, 2017
Money | By Armando Alvarado

China eyes increased control in yuan fixing

China eyes increased control in yuan fixing

Central bank policy stipulates that the yuan is restricted to moves of no more than 2 per cent on either side of the reference rate.

Chinese authorities said in a statement on Friday that they may add a "counter-cyclical factor" to the yuan's daily fixing, reports Bloomberg.

Having greater control over the currency could help authorities maintain yuan stability during the debt-reduction campaign.

"The authorities' actions give the impression that they are more anxious about yuan stability than declared in their public statements".

Propping up the yuan has been a policy priority this year as authorities try to stem capital outflows and prevent financial shocks before an important leadership reshuffle in the ruling Communist Party at the end of 2017.

The stakes have become higher in recent weeks after a regulatory clampdown on the shadow banking system roiled domestic bond and equity markets.

The recent move to set new formula is expected to further lower the transparency in setting the exchange rate and rather provides additional room for the authorities to use their discretion, noted Nordea Bank.

SCHEDULE: Golden State Warriors 2017 NBA Finals on ABC7
Simply put, while LeBron has gotten better in virtually every aspect of the game during the playoffs, his teammates just haven't. The Cavaliers played strong, shot well from 3-point range, and forced the Celtics into 18 turnovers over the course of the game.

It did not elaborate on the technical details of how the "countercyclical factor" will be determined.

The new formula would partly filter out the impact of excessive volatility in the spot market by reducing the closing price's role in the next day's fixing, Bloomberg quoted its sources as saying.

China's foreign exchange market is prone to the "habitual influences of irrational expectations" and one-way market expectations can sometimes be exaggerated, failing to reflect the real relationship between market supply and demand, the statement said.

For China's government, the existing market-based fixing system's downside is that it makes the exchange rate more hard to control.

Analysts also said China is entitled to make adjustments to the methodology of setting the yuan's reference rate. "The introduction of the "countercyclical factor" will help reduce that deviation".

The yuan lost around 6.5 percent of its value against the surging dollar a year ago but has been more stable so far in 2017 as the greenback lost steam.

The tug of war resulted in a narrow trading range - around 6.9 per United States dollar - until the past two days, when the yuan posted its biggest gains since January amid suspected government intervention.

Like this: