Ahead of next week's IMF meetings , the yuan trading band is widened.....

http://www.telegraph.co.uk/finance/9204346/China-moves-on-currency-after-growing-US-pressure.html

The People’s Bank of China said that from Monday it will double the trading band, so that the yuan can fluctuate by 1pc every day from a mid-point, compared with its previous limit of 0.5pc.

The move demonstrates Beijing’s belief that the yuan is now stable enough to handle major structural reforms, despite slowing growth of the Chinese economy.

Analysts said the slowdown may have actually spurred Beijing to make the change, because the Chinese government knew it could introduce the larger band without causing a spike in the yuan’s value.

"The central bank chose a good time window to enlarge the trading band. The market's expectation for a stronger yuan is weakening," said Dong Xian'an, chief economist at Peking First Advisory in Beijing.

Nonetheless, The People's Bank of China took the unusual step of issuing its announcement in English rather than Mandarin.

Sources said China wanted to deflect criticism of its currency policy ahead of the International Monetary Fund's annual spring meeting in Washington next week.

IMF managing director Christine Lagarde supported the move today. She said:

"I would like to welcome this important step by the People's Bank of China to increase the flexibility of their currency.

"This underlines China's commitment to rebalance its economy toward domestic consumption and allow market forces to play a greater role in determining the level of the exchange rate."

According to data released by the National Bureau of Statistics on Friday, China’s economy grew at its slowest rate in nearly three years in the first quarter of 2012.

The country’s annual rate of GDP growth slowed to 8.1pc from 8.9pc in the previous three months, marking the fifth consecutive quarter of slowing growth in China.

The figures chimed with investor fears that the slide in China’s growth has yet to bottom out and that interventionist measures are required to halt it.

China’s economic growth is seen as one of the engines for global recovery, so any decline or slowdown is seen as a warning flag for other financial markets.

China’s economy expanded by 9.2pc in 2011, its lowest rate for two years, and its disappointing start to 2012 has revived concerns about the strength of the US economic recovery.

“In general, I think the first-quarter export results have disappointed the consensus. We still believe there should be more policy relaxation to add to growth domestically and offset weakness in exports,” said Kevin Lai, an economist at Daiwa in Hong Kong.

and......

http://news.xinhuanet.com/english/bilingual/2012-04/14/c_131526758.htm

China widens yuan's trading band against USD

BEIJING, April 14 (Xinhua) -- The People's Bank of China (PBOC), the country's central bank, announced Saturday it will widen the yuan's daily trading limit against the U.S. dollar to 1 percent from Monday.

In the foreign exchange spot market, Chinese banks can exchange the yuan 1 percent above or below the central parity against the U.S. dollar announced by the China Foreign Exchange Trading System each trading day.

Previously, the daily trading limit was set at 0.5 percent.

The announcement came a month after PBOC governor Zhou Xiaochuan told Xinhua on the sidelines of the annual parliamentary session that the country is considering "appropriately" widening the yuan's trading band to better reflect an exchange rate regime decided by market supply and demand.

China's current foreign exchange market is developing more maturely and trading entities are more capable of pricing independently and managing their risks, the PBOC said in a statement on its website.

Adjusting to the demand of market development, widening the yuan's trading band aims to promote exchange of the Renminbi, boost the yuan's two-way fluctuation flexibility and improve the market-based managed floating exchange rate regime tied to a basket of foreign currencies, according to the PBOC.

The central bank pledged in the statement that it will maintain the "normal fluctuation" of the yuan's exchange rate, stabilize the rate at "reasonable and balanced levels," and keep the macro economy and financial markets stable.

Zhao Qingming, a senior researcher with China Construction Bank, said the widening of the yuan's trading band against the U.S. dollar is helpful to bring the exchange rate of the Chinese currency to balanced levels.

"The PBOC's move [to widen the trading band] has been much anticipated for a long time," said Lu Zhengwei, chief economist of the Industrial Bank, welcoming the central bank's long-awaited announcement.

Lu said he hoped the trading band would be further extended, to 2.5 percent in about 10 months, then to between 10 percent to 20 percent in three years to prepare for the free floating to provide a buffer zone for the greenback's future fluctuation.

Calling it "a symbolic move" by the PBOC, HSBC economist Qu Hongbin said the widening of the trading band implies the trend for the yuan's one-way appreciation has come to an end.

"The yuan will be ushered into a new era of truly two-directional fluctuation," Qu said, citing "great changes" in the yuan's fundamentals.

"China's foreign trade is coming to an almost balanced level and the yuan has appreciated 30 percent against a basket of major currencies since 2005 to approach very closely the market's balanced level," Qu added.

China swung back to a trade surplus in March from February's deficit of 31.48 billion U.S. dollars, posting a 670-million-U.S.-dollar trade surplus in the first quarter, according to customs data.

However, Zhao Qingming, the economist for CCB, China's second-largest lender, said whether China will allow a wider trading band remains unclear. "We can't expect too much from it, because the widening is merely a technical adjustment," he explained. According to Zhao, judging by the daily fluctuations of major currencies, it is extremely rare to see daily changes reach or exceed 1 percent. The yuan strengthened 5 basis points to 6.2879 against the U.S. dollar on Friday. The central parity rate of the yuan against the U.S. dollar is based on a weighted average of prices before the opening of the market each business day.