China’s central bank plans change to yuan fixing formula, sources say
A ‘counter-cyclical adjustment factor’ will apparently be added to reduce the impact of market volatility
China plans to change the way it calculates the yuan’s daily reference rate against the dollar, adding a “counter-cyclical adjustment factor” that may blunt the impact of big market swings, according to people familiar with the matter.
Under the new formula communicated to banks by China’s monetary authority this week, institutions that provide quotes for the fixing will take into account the previous day’s official closing price at 4.30pm local time, the changes in baskets of currencies, and the new counter-cyclical adjustment factor, said the people, who asked not to be identified because the matter is private.
Banks are currently tweaking and testing their models and will start to provide quotes using the new formula soon, the people said.
Under current conditions, the new formula would partly filter out the impact of excessive volatility in the spot market by reducing the closing price’s role in the next day’s fixing, the people said.