China is changing its way of calculating the guidance rate for the yuan against the dollar for a second time this year in a bid to reduce volatility, Reuters reported May 26.
Asia's largest economy will reduce market "herd effects" on the yuan by introducing a counter-cyclical factor into its daily fixing, the China Foreign Exchange Trade System said in a statement. The statement did not give details of the factor or how it would work, but added that it would help guide the market to focus more on macroeconomic fundamentals, Reuters said, citing traders saying the change might make the fixing harder to predict and so reduce the incentive for speculation.
"This introduces non-market forces into the yuan midpoint mechanism," said one senior trader at a Chinese bank in Shanghai, according to Reuters. "When there's huge depreciation expectation for the yuan, the 'factor' would allow them to fix the midpoint at a stronger level. ... It makes it harder to speculate."