Yuan exchange rate reform set to accelerate

Updated 2018-01-10 10:31:08

Currency will further strengthen against dollar: experts

China is expected to further accelerate market-oriented reforms for the yuan's exchange rate in 2018, as more market tools will be used to guide the yuan's rate, a financial newspaper reported on Tuesday.

"Market-oriented reforms for the yuan's exchange rate are still the broader direction in the future and [implementation of the reforms] is expected to be further accelerated," the China Securities Journal said in a front-page article.

The article, which cited multiple prominent experts, said that indirect measures such as using interest rate adjustments to guide the yuan's exchange rate would be gradually adopted and that China should push for the organic combination of the foreign exchange market, currencies market and sovereign bonds market to maintain a flexible set of tools.

The report came after the People's Bank of China (PBOC), the central bank, set the central parity rate for yuan trading at 6.4832 against the U.S. dollar - the strongest level since May 2016 - on Monday.

The PBC set the central parity rate at 6.4968 on Tuesday, 136 pips weaker than the level on Monday. The currency is allowed to trade 2 percent below or above the central parity rate.

Citing a report from China International Capital Corp (CICC), the China Securities Journal suggested that the yuan would continue to strengthen in 2018, despite pressure from a potentially strong dollar.

"We forecast the dollar will remain relatively stable in the first half of 2018, and then weaken in the second half, when the yuan will be appreciating," the CICC report said.

"From the yuan's perspective, there is no basis for depreciation," Huang Jianhui, head of the Research Institute of China Minsheng Bank, was quoted as saying in the China Securities Journal report.

Huang said that the Chinese economy will not see a major slowdown and the country will maintain its current account surplus. He estimated the yuan would fluctuate around the level of 6.5 to 6.7 against the dollar in 2018.

Stability in the yuan's exchange rate provides a window for further reforms, Sun Chao, a manager at Changjiang Securities, pointed out in the article.

"Currently, the dollar index is weak and the Chinese economy is in a positive state. Therefore, both internal and external conditions are conducive for pushing ahead with reforms," Sun said.

The PBOC has also stressed that it will continue market-oriented reforms for the yuan's exchange rate in 2018.

"Market-based interest rate reform and exchange rate regime reform will be deepened; and risk management will be strengthened to stick to the bottom line of no systemic financial risks," the central bank said in a statement on Thursday.

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