First trading day smooth with wider band

BEIJING - Widening of the yuan's trading range against the US dollar went smoothly on Monday, according to the China Foreign Exchange Trading System (CFETS).

The CFETS said the central parity of the renminbi, as the yuan is formally known, went up 25 basis points to 6.1321 against the US dollar on Monday, while the spot market ended the trading day 460 basis points lower at 6.1781, down 0.75 percent.

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The People's Bank of China (PBOC) announced on March 15 that it would widen the yuan's daily trading band from the current 1 percent to 2 percent from Monday.

Chinese banks can exchange the yuan in the foreign exchange spot market at 2 percent above or below the central parity against the US dollar announced by the China Foreign Exchange Trading System each trading day, according to the PBOC's statement.

Professor Ding Zhijie, of the University of International Business and Economics, said that the first trading day was unproblematic and without drastic growths or declines, but eventually the new policy may increase the risk of exchange rate fluctuation and demand for the US dollar.

Liu Dongliang, chief analyst with China Merchants Bank, said the unremarkable day was a result of a cautious investment attitude, and a transitional period was needed for the real outcome to emerge.

Analyst Zhao Qingming said that the wider band helps market operations be more prudent and stabilizes the foreign exchange market.

China has adopted a steady pace in raising the yuan's daily trading limit, from 0.3 percent in 1994 to 0.5 percent in 2007 and 1 percent in 2012 to the latest 2 percent.

The widening of the band comes after continued yuan weakening against US dollar from mid February to early March, causing widespread concern.