Yuan weakens after China’s reform move

SHANGHAI: China’s yuan weakened against the US dollar yesterday, the first trading day after a landmark move by Beijing aimed at liberalising tight controls over the currency that have angered trade partners.

The People’s Bank of China said on Saturday the unit would be allowed to fluctuate by 1% above and below a daily midpoint – double the previous 0.5% – giving the currency more flexibility.

Analysts said the move paved the way for more financial reforms aimed at even greater flexibility in the yuan, which many of China’s trading partners said Beijing kept artificially low to maintain a competitive export industry.

“The time is ripe for China to carry out certain reforms, and we think the government may launch a series of financial reforms to increase the flexibility of the exchange rate,” Sun Junwei, macro-economic analyst at HSBC, told AFP.

Chinese leaders have repeatedly pledged to make the tightly-controlled exchange rate more flexible as a step towards allowing the yuan to become freely convertible.

“There has been a flurry of recent reforms affecting the (yuan) and the broader financial sector, all of them pointing in the direction of more liberalisation,” said Mark Williams, chief Asia economist for Capital Economics.

“The wider band lays the groundwork for a more market-driven and volatile exchange rate regime somewhere down the road,” he said.

Yesterday the central bank set its trading midpoint at 6.2960 yuan to the dollar, weaker than Friday’s central parity rate of 6.2879, the People’s Bank of China said. In afternoon trade, the yuan stood at 6.3159 to the dollar against Friday’s close of 6.3030, with the Chinese currency weakening on worries over the country’s slowing domestic economy. — AFP