PBOC adjusts formula for yuan fixing, sparking rise in currency
Move aimed at warding off potential capital outflows from impending rise in US interest rates
The People’s Bank of China will adjust the formula for calculating its daily yuan reference rate, in an apparent aim to ward off potential capital outflows resulting from the United States Federal Reserve’s impending rise in interest rates.
A “counter-cyclical adjustment factor” would be added to the closing exchange rate and to the basket of currencies for calculating the yuan’s daily fixing, or the mid-point rate from which the yuan is allowed to trade by up to 2 per cent, Bloomberg reported, citing unnamed sources as saying, without clarifying details.
“The counter-cyclical adjustment factor is aimed at reducing the herd behaviour in the foreign exchange market and guide the focus back to economic fundamentals,” the central bank said on its website on Friday.
The commercial banks that contributed daily quotes for the setting of the yuan reference rate would apply the new revision shortly, Bloomberg said.
Offshore, the yuan surged 0.47 per cent, the most since March 15, to 6.8161 against the US dollar on Friday, the strongest level since February.
Onshore, the yuan rose to as high as 6.8465 to the dollar before settling at 6.8525, the strongest since February and above the day’s reference rate at 6.8698.