SHANGHAI Feb 20 China tweaked its formula for
setting daily reference midpoints for its yuan currency on
Monday, three sources with direct knowledge of the matter said,
in what was seen as authorities' latest move to help curb
speculation in the currency.
Global attention on China's exchange rate policy has
intensified since its foreign exchange reserves fell below the
$3 trillion level in January, but currency traders said it was
too early to say if the latest changes were anything more than
technical in nature.
The tightly managed currency is allowed to trade in a narrow
daily band which is defined by a midpoint fixing rate set by the
market regulator each morning.
One of the components the regulator uses to calculate its
midpoint is the movements in other currencies of China's trading
Monday's adjustment by the operator of the foreign exchange
trading platform shortens the reference period for those
currencies, banking sources said on the condition of anonymity.
The China Foreign Exchange Trade System (CFETS) reduced the
reference period of yuan trading against its trade-weighted
basket to 15 hours (from 4:30 p.m. (0830 GMT) to 7:30 a.m. (2330
GMT) from 24 hours under the previous system.
The sources said the latest adjustment was meant to better
reflect changes in the forex market, and help curb intraday
speculative trading activity.
Traders said the change would make the yuan midpoint more
"reasonable", but believed its impact on the foreign exchange
rate would be very limited.
"The latest move was more like a debugging, as changes in
the yuan value (against the currency basket) during the daytime
trade were counted twice in the old mechanism," said a
Shanghai-based trader at a Chinese bank.
He said the 4:30 p.m. official closing price already
included the changes in the yuan's value against the basket
during the day.
The People's Bank of China also takes overnight changes in
the U.S. dollar into account in its midpoint calculation, as
well as estimates from market contributors on the yuan's value.
The FX trading platform operator declined to comment on the
matter when contacted by Reuters.
The central bank, which oversees the FX trading platform
operator, has been trying to reform the way it manages the yuan
by making it more market-driven and transparent.
On Dec. 29, the CFETS changed the composition of the CFETS
basket that is used to set the yuan's daily value. Starting from
the beginning of this year, the number of currencies in the
basket was increased to 24 from 13.
On Monday, the PBOC set the midpoint rate at
6.8743 per dollar prior to the market open, weaker than the
previous fix of 6.8456.
The spot yuan weakened against the dollar, and
settled at 6.8782 as of 0830 GMT.
Despite interventions by state-owned banks, the yuan lost
6.6 percent of its value against the surging dollar last year,
its biggest annual fall since 1994 and prompting authorities to
tighten restrictions on capital outflows.
It has recouped about 1.2 percent so far this year as the
dollar lost steam, but most market watchers expect the yuan to
resume its depreciation soon if the U.S. central bank continues
to slowly raise interest rates.
(Reporting by Shanghai Newsroom; Editing by Shri Navaratnam and