China launches new yuan index to sway markets away from yuan-dollar focus

BEIJING (Reuters) - China has begun issuing a yuan exchange rate against a basket of currencies in a move to discourage investors from exclusively tracking the yuan’s fluctuations against the U.S. dollar.

A logo of yuan is seen at a foreign exchange store in Shanghai, China, December 1, 2015. REUTERS/Aly Song

The yuan has been weakening against the dollar in recent months, mainly pressured by market jitters about slowing growth in China and an expected interest rate rise in the United States.

The China Foreign Exchange Trade System (CFETS) announced late on Friday that it had launched a new trade-weighted yuan exchange rate index, which was at 102.93 on November 30, a rise of 2.93 percent from the end of 2014. In that same period, the yuan has fallen 3 percent against the dollar.

The move is intended to “facilitate the market to observe the change of RMB effective exchange rate from different perspectives”, the CFETS, China’s interbank foreign exchange market, said in a statement.

“It’s more desirable to refer to both the bilateral RMB-USD exchange rate and exchange rate based on a basket of currencies,” said a commentary on the website of the official foreign exchange market, which was also published on the central bank’s website.

Chinese officials have urged investors to gauge the yuan’s changes against a basket of currencies, rather than just the dollar, in a bid to ease market concerns about the yuan’s weakness. Signaling to markets that the yuan’s weakness wasn’t unusual, the officials have noted the dollar’s gains against major currencies.

Some analysts believe the move signaled the central bank’s intention to gradually shift towards a basket system for the yuan, but others disagreed.

“It should not be regarded as a formal policy shift by the PBOC to a specific exchange rate targeting regime that, the Monetary Authority of Singapore uses, for example,” analysts at HSBC said in a note.

On Friday, the yuan fell to its weakest in 4-1/2 years and posted its longest weekly losing streak in a decade, after the People’s Bank of China set its daily guidance rate at its weakest level since August 2011.

The extended decline has prompted traders to wonder how much Beijing is prepared to allow the currency to fall.

Reporting by Beijing bureau; Editing by Hugh Lawson & Shri Navaratnam