China's yuan band to double says poll
Beijing, March 16, 2012
China could double the daily trading range allowed for the yuan currency as soon as the second quarter and cut 150 basis points more from bank reserve ratios this year to boost credit growth as the world's second-largest economy slows, according to a Reuters poll.
The median forecast of 21 analysts and economists, however, showed the People's Bank of China (PBOC) would keep its benchmark interest rates unchanged this year.
The yuan's movement is currently restricted to a 0.5 percent range either side of a mid-point fixed by the PBOC each day. The median forecast of 15 analysts in the Reuters poll is for that to widen to 1 percent in a move that could come as soon as April, according to analysts at Huatai United Securities.
Expectations of a shift in the yuan's trading band have grown in the last two weeks as Premier Wen Jiabao promised to speed reform of China's tightly-controlled currency regime and PBOC Governor Zhou Xiaochuan said markets would play a bigger role in setting the yuan's value.
The PBOC appears to be testing the reaction of financial markets and China's exporters to bigger swings in the yuan after setting a string of weak mid-points since the start of this month.
The weakening of the mid-point in the first half of March was the biggest fall for any such period since the establishment of the domestic foreign exchange rate in 1994. The mid-point was set firmer on Friday, at 6.3200 per dollar.
Still, the analysts polled by Reuters expect the yuan to continue to strengthen this year. Their median forecast was for an appreciation to 6.15 against the dollar by the end of 2012, up 2.8 percent from Friday's spot rate.
The expectation of appreciation runs contrary to the fortnightly poll of 10 currency analysts conducted by Reuters, which revealed on Thursday the first bearish call on the yuan in nearly two years.
The yuan has gained 7.8 percent to the dollar since June 2010, after having been held basically steady by China for two years through the worst of the global financial crisis. It has gained around 30 percent to the greenback since a landmark reform in 2005 that broke the currency's peg to the dollar. - Reuters