BEIJING, Jan. 10 (Xinhua) -- The central parity rate of the Chinese currency, the renminbi or the yuan, weakened 239 basis points to 6.5207 against the U.S. dollar Wednesday, the lowest point in about two weeks.
The softer rate came after drops in the offshore yuan against the dollar Tuesday following rumors that the country's central bank had notified lenders to suspend the "counter-cyclical factor" in the pricing mechanism of the yuan's central parity rate.
The People's Bank of China said in response that parameters of the "counter-cyclical factor" are determined by market-making banks based on their own judgement on the macro-economy and the foreign exchange market.
In May 2017, authorities introduced the "counter-cyclical factor" to the existing pricing model of the yuan's central parity rate against the dollar, aiming to moderate pro-cyclical fluctuations driven by irrational sentiment in the foreign exchange market.
In China's spot market, the yuan is allowed to rise or fall by 2 percent from the central parity rate each trading day.
The central parity rate of the yuan against the U.S. dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.
The China Foreign Exchange Trade System said that China's foreign exchange market is prone to irrational expectations due to a certain level of "pro-cyclicality," which distorts market demand and supply, and increases the risk of the market exchange rate overshooting.
Adding the "counter-cyclical factor" to the existing model will help correct the trend and steer market attention to the macro-economy, it said.
China has been pushing reform of the yuan's exchange rate formation system to make the currency more market-oriented and help stabilize expectations.
With the reforms, the yuan exchange rate has increased two-way volatility since 2017, according to Zhou Hao, an economist with Commerzbank Asia.
The yuan's onshore exchange rate strengthened by 6.72 percent against the U.S. dollar in 2017, the sharpest annual appreciation in nine years, according to calculations by financial information provider Eastmoney.com.
The currency has seen sustained strength this year, with its central parity rate strengthening to a 20-month high against the U.S. dollar on Monday.
In 2018, Zhou expected that the yuan will move up slightly against a basket of currencies.
