People’s Bank of China plans counter-cyclical tweaks to yuan parity

The People’s Bank of China has plans to tweak the way it sets the yuan’s daily reference rate to the U.S. dollar to add a “counter-cyclical factor” to the pricing model it offers to market makers.

The PBOC has fine-tuned the pricing mode in the last couple of years by taking reference to the yuan-dollar closing price and the yuan’s value against a basket of currencies.
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But the China Foreign Exchange Trade System said the mainland’s foreign exchange market was susceptible to “irrational expectations” that could exaggerate one-sided sentiment. A “counter-cyclical” factor in the pricing model could help offset the “herd effect” and bring the yuan’s central parity in line with economic fundamentals, it said.


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