Yuan Volatility Falls as PBOC Seen Keeping Stability Into 2016

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A measure of expected swings in the yuan fell for a third day on bets China will maintain exchange-rate stability into 2016 after the IMF signaled a delay to giving the currency reserve status.

The International Monetary Fund proposed on Tuesday moving back the expansion of its Special Drawing Rights basket to September 2016 from the end of the year, if the yuan is added. Australia & New Zealand Banking Group Ltd. said it expects China to maintain a tight grip on the currency until inclusion and Goldman Sachs Group Inc. said the review of the basket is a key reason it sees a stable yuan in the coming months.

The onshore yuan’s one-month implied volatility, which is used to price options, fell three basis points to 1.2 percent as of 5:10 p.m. in Hong Kong, according to data compiled by Bloomberg. The gauge has dropped 31 basis points in the three days through Thursday.

“The onshore yuan will be kept basically stable by the PBOC this year and next, even after the IMF finishes its review,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. “China will always want to ensure the currency is steady and attractive as it promotes its global use.”

The onshore yuan, which is allowed to move as much as 2 percent either side of a central bank fixing, closed little changed at 6.2097 a dollar, according to China Foreign Exchange Trade System prices. The currency in Hong Kong, which trades freely, was steady at 6.2185, data compiled by Bloomberg show.

China’s economy should prove resilient enough to withstand the recent stock-market rout, and government intervention to stem declines shouldn’t “unduly derail” the yuan’s prospects of being included in IMF’s SDR, Managing Director Christine Lagarde said last week. The yuan’s admission to the basket, which includes the dollar, euro, pound and yen, would lure as much as $1 trillion of inflows to China’s bond market over five years, Standard Chartered Plc estimated in May.

The People’s Bank of China set its daily reference rate at 6.1181 a dollar, little changed from Wednesday. The gap between the onshore spot and the fixing was 1.5 percent.

— With assistance by Tian Chen

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