Stable forex policy urged as yuan sets new mark against dollar
Updated: 2008-04-10 21:11
Investment bank UBS issued a report on Wednesday saying that the PROC had let the yuan strengthen again as concerns about encouraging so-called hot money inflows had eased.
"By (last) October it was clear that capital was flowing back out of the country, likely tied to the turnaround in the domestic stock market," it said.
But deeper exchange-rate reforms were needed to counter speculation in the yuan, said experts.
A wider daily trading band would provide greater flexibility to the central bank and increase speculators' risks. It would also give the currency more room to move lower as well, said Bank of China researcher Wang Yuanlong.
The PBOC has set a 0.5-percent daily trading band for the yuan against the dollar. The rate is determined by the weighted average of quotes (the highest and lowest excluded) on the inter-bank market. Wang forecast that the band might be widened to 1 percent.
Premier Wen Jiabao has made it a government task this year to perfect the exchange rate mechanism and improve flexibility.
However, continuously rising pressure for a stronger yuan will make monetary policies harder to implement, said Tan.
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