China to adjust the formula for calculating the RMB reference rate

Almaty. June 5. Silkroadnews – China will adjust the formula for calculating yuan central parity reference rate against the US dollar to stabilize the exchange rate under the world financial market instability, the newspaper “Renmin ribao” writes.
At the moment China has a floating exchange rate regime, in which the yuan daily fixing to dollar can fluctuate in the range of 2% of the central parity rate, which is the average value of the dealer banks’ currency quotations and also takes into account the final rate of the previous trading day and changes in the currency basket.
The new formula, announced recently by the China Foreign Exchange Trading Center, will allow dealers to include a “counter-cycle adjustment factor” in the formula for calculating the exchange rate. China’s foreign exchange market is highly affected by irrational expectations and driven by inertia, due to a certain level of “procyclicality”. This, to some extent, deforms the market demand and supply, reinforcing the risk of excessive exchange rate adjustment.
The “counter-cyclical factor” introduction, as assumed, will take into account the existing economic conditions, however, so far there are no details on the process of exchange rate calculation and terms of new formula introduction.
To remind, in October 2016 the yuan was included in the IMF’s currency basket along with the dollar, euro, pound sterling and yen.