Yuan eases after PBOC widens trading band

A currency exchange counter at a subway station in Shanghai. The yuan closed at 6.1781 to the dollar on Monday, down 285 basis points from Friday. Provided to China Daily

Yuan exchange rate's floating range widened

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The yuan eased against the US dollar in the first trading day after China doubled the currency's daily trading band to 2 percent - a move intended to increase volatility and break one-way appreciation.

The yuan closed at 6.1781 to the dollar on Monday, down 285 basis points from Friday.

The currency weakened even though the People's Bank of China set the daily reference rate 25 bps higher at 6.1321.

Economists said that Monday's movement reflects growing market uncertainty about the yuan's direction after a decade of almost unbroken appreciation, which was just what the central bank intended.

Over the weekend, the PBOC widened the yuan's trading band for the third time since 2007. The band was widened to 1 percent from 0.5 percent in April 2012. Before that, it was widened to 0.5 percent from 0.3 percent in May 2007.

The PBOC also said in its announcement that the spread between selling and buying rates offered by foreign exchange-designated banks can't exceed 3 percent of the central parity rate, instead of 2 percent, adding further flexibility to the market.

Between mid-February and the PBOC's move, the yuan slid more than 1.5 percent against the dollar - the result of heavy intervention by the PBOC, which had become concerned about speculators with significant long yuan positions.