The central parity rate for the yuan against the US dollar reached a new high
yesterday, the first trading day after the central bank widened its daily band
against the greenback.
new central parity rate was 7.6652, a 152 basis point gain from Friday's
reference rate of 7.6804.
The People's Bank of China announced on Friday that it would widen the
yuan's daily floating band against the US dollar from 0.3 percent to 0.5
percent, a move that took effect yesterday.
It means the yuan will be permitted to rise or fall by 0.5 percent each day
from a mid-point set each morning.
The step came ahead of the strategic economic dialogue scheduled for May 22
to 23, when Beijing and Washington are expected to discuss such issues as trade
and the yuan's exchange rate.
Zhao Xijun, finance professor with the Renmin University of China, said the
move indicates steady progress in China's exchange rate reform and predicted the
yuan will become more flexible. "China's financial sector has improved to an
extent and can sustain a wider trading band of the renminbi ."
The central bank said the adjustment does not necessarily mean "the yuan will
fluctuate by a lot or appreciate by a large magnitude".
Stephen Green, economist with Standard Chartered Bank (China), said: "This
will of course trigger market expectations for more aggressive yuan
appreciation, but we believe this is the wrong conclusion to draw."
"We expect the exchange rate of the yuan against the US dollar to become more
flexible in the future, but in both directions," said Sun Mingchun, economist
with Lehman Brothers. "We see this move as one aimed at gradually increasing the
volatility of the exchange rate rather than speeding up the pace of
(China Daily 05/22/2007 page13)