China central bank move on yuan a sign of caution, not reform zeal
Central bank path seen as least risky and also offers a way to hedge against further slowdown
Paradoxical as it may sound, China's move to give the yuan more wiggle room is a sign of caution and deepening concern about the slowing economy rather than a promise of Beijing's vigorous pursuit of market reforms, government economists say.
The move was no big surprise, although by doubling the currency's trading band, the People's Bank of China went a bit further and acted a bit sooner than some had expected.
Yet many took that as a reassurance the broad financial liberalisation promised at a key leadership gathering last autumn was on track, including the expected removal of controls on deposit rates.
However, government economists and policy advisers involved in internal policy discussions said that of all the possible policy steps, the central bank chose the one considered least risky and that also offered it a way to hedge against further economic slowdown.
After a string of weak economic data casting doubt on Beijing's 7.5 per cent growth target for this year and signs of financial strains in some industries and the financial sector, Beijing is now less willing to accept short-term pain.
Yuan has been depreciating, and there is no risk of big appreciation
"The band widening was an easier step. Removing the ceiling on bank deposit rates needs more preparation, and it's unlikely to happen this year," said a senior economist at the Chinese Academy of Social Sciences, a top government think tank.