Cliff Tan, East Asia head of global currency research at Bank of Tokyo-Mitsubishi UFJ in Hong Kong, comments on the widening of the yuan’s trading band by the People’s Bank of China:
“It happened a quarter earlier than I have expected. I expected it to be at the second half of the year.
‘‘It’s very in line with what (PBOC Governor) Zhou Xiaochuan has been saying that they feel like in the next phrase in the exchange rate reform for the market forces to play a bigger role.
‘‘They are quite serious about letting market forces play a bigger role so that the exchange rate could be the shock absorber for the current account. The key is not where the theoretical trading range is, but the actual trading range that addresses the demand and supply.
‘‘This is a statement about volatility not the level. The exchange rate should be moving faster to its equilibrium, but it still depends on how China manages it. It’ll take a few months to see, under the new regime, how the exchange rate moves with a wider band.’’
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