Yuan market disconnect sparks debate
state-run newspapers China Daily and the China Securities Journal - have run articles quoting analysts calling for the band to be widened for a second time before the end of the year.
Such a move is theoretically uncontroversial because Beijing has already said it plans to let the currency float freely.
I think they are going to widen the intra-day band again, because ultimately the goal is no band, said Chia Woon Khien, strategist at the Royal Bank of Scotland.
But she did not suggest a deadline for the move, and economists say that while more liberalisation is necessary, making a permanent adjustment to the current system in reaction to what most say is a short-term trend might destabilise the market, prompting more intervention, not less.
There is no urgency to widening the band, said Dariusz Kowalczyk, strategist at Credit Agricole CIB, arguing that the move should come as part of a wider liberalisation package that includes interest rate reforms and capital account opening. Traders also pointed out that the last time the PBOC widened the band, it did so when the rate was stable. Before another widening is implemented, they said, the bank will need to get the spot market back in line with the midpoint.
SOURCES OF STRENGTH
Many speculated that the charge of the yuan was originally provoked by Beijing to provide rhetorical ammunition to U.S. President Barack Obama's re-election bid, but now traders credit market-driven demand.
Companies accumulated too many dollars when the yuan depreciated over
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