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Paula Chan and Ronald Chan, managing directors of fixed income at Manulife Asset Management in Hong Kong, comment on the People’s Bank of China’s widening of the yuan’s daily trading band to 1 percent from 0.5 percent. They made the comments in an e-mailed response to Bloomberg questions today.
“The timing of the move is in line with the authority’s stance since end of 2011 and early 2012. The widening of the currency band is part of the currency liberalization.
“This not only allows greater flexibility for China to maneuver during the current global economic uncertainties, but also helps to close the gap between the market volatility of the onshore yuan and offshore yuan versus the dollar.
“This move will not change the currency forecast for the yuan this year. A 2 to 3 percent annual appreciation is expected with higher volatility.
“The implications for the Dim Sum bond market are positive as the gap between the offshore yuan and the onshore rate is expected to become tighter, which will reduce some of the concerns investors may have about the volatility between the two rates.”
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