China doubles yuan trading band to 1%

Written by Bloomberg | Beijing | Updated: Apr 15 2012, 07:08am hrs
China widened the yuans trading band for the first time since 2007, a move that may be intended to stem criticism from trading partners after expectations for gains in the currency diminished.

The increase to 1% from 0.5% will take effect from April 16, the Peoples Bank of China said on its website on Saturday. The previous broadening of the trading band, which is centered on a rate set daily by the central bank, was from 0.3% in May 2007. The shift comes days before the International Monetary Fund and Group of 20 hold talks in Washington, forums used by finance chiefs to lobby China to let the yuan gain. Expectations for a stronger currency dwindled in the past six months as Premier Wen Jiabao cut the countrys economic growth target, Europes sovereign-debt crisis hurt exports, and China's trade deficit in February swelled to the biggest since at least 1989. Political pressure may be a main factor in the move, said Ren Xianfang, a Beijing-based economist with IHS Global Insight, who added that this is a political year because of a looming US presidential election.

While the yuan reached an 18-year high at 6.2884 per dollar on February 10, President Barack Obamas administration and US lawmakers say the currency remains weak enough to give China, the worlds biggest exporter, an unfair advantage in trade.

China will avoid significant appreciation or depreciation this year, Lu Ting, an economist at Bank of America in Hong Kong, said after the announcement, citing reasons including an uncertain global economy.

The yuan ended last week at 6.3030 per dollar, up about 8.3% since the scrapping in June 2010 of an almost two-year peg imposed during the global financial crisis. Gains have stalled this year and a slowdown in Chinas growth combined with official comments that the currency may be near equilibrium are damping expectations for strengthening.