US EUROPE AFRICA ASIA 中文
Business / Markets

Yuan suffers biggest loss since 2008

By ZHENG YANGPENG (China Daily) Updated: 2015-01-27 08:07

"Given the situation, widening the trading band is an option. Further, the central bank should shift from its strategy of a de facto peg of the yuan against the dollar to one that gives other major currencies more weight," said Wang.

That could lead to a scenario where the Chinese currency depreciates against the dollar while also appreciating against, for example, the euro, instead of falling against all currencies just because of a dollar rally.

In terms of the trading band, many institutions have speculated that the PBOC may widen the band to 3 percent this year as long as the currency continues to demonstrate two-way volatility.

Ding said that doing so might prompt institutions to bet on continuous appreciation of the dollar and buy the dollar, which would prompt a further slide of the yuan.

Instead, he said, there is still room to use the reference rate to prop up the currency.

Many expect the yuan to depreciate slightly against the dollar in 2015. Fielding Chen, a China economist with Bloomberg, said in a note that a big drop is unlikely, because such a drop would inspire political pressure from the US.

Significant depreciation might also trigger big capital outflows, which would threaten the financial sector's stability, Chen said.

As the PBOC is expected to cut interest rates this year, a narrower yuan-dollar interest rate differential could deter capital inflows while contributing to the depreciation of the yuan.

But Wang said there are also factors positive for appreciation. For example, the falling oil price would push up China's trade surplus.

Previous Page 1 2 Next Page

Hot Topics

Editor's Picks
...