PBOC Strengthens Yuan Fixing to a Level That Forces Appreciation

China’s central bank moved its reference rate for the yuan outside the daily trading band for the first time in 21 months, forcing the currency to strengthen as authorities seek to limit volatility in capital flows.

The People’s Bank of China raised its fixing by 0.08 percent to 6.1318 a dollar, which was 2.06 percent stronger than Tuesday’s closing spot price. The onshore exchange rate can deviate from the reference by a maximum 2 percent. China’s capital account posted a $91.2 billion deficit in the fourth quarter, the widest in data going back to 1998. The PBOC may step in to keep the exchange rate stable if the impact from capital flows becomes larger, according to a commentary in the official China Securities Journal Wednesday.