The central bank has kept the yuan stable within a tight range, in line with the government's policy to avoid any negative impact of a volatile exchange rate on the country's economy. But as China is now the world's second-largest economy, a rigid exchange rate policy appears to have increasingly become a barrier for development and a major source of its trade disputes with major partners such as the United States and Europe. Speculation has surfaced since the second half of last year, when the euro zone debt crisis was casting uncertainties on China's economy and the global economy, that the authorities may consider letting the yuan's movements be more flexible to help the country fight global economic and market volatility. Premier Wen Jiabao, in his working report delivered at the annual parliamentary session, said on Monday that China aimed to enhance the "elasticity" of the yuan's exchange rate in either direction while keeping the currency largely stable. "The PBOC's mid-point on Monday appears aimed to give the market the first hint of what is going to happen in coming months," said a trader at a major European bank in Shanghai. "While the yuan may move in a relatively wider range, its eventual appreciation against the dollar will remain limited in line with Premier Wen's call for stability." Spot yuan ended at 6.3067 versus the dollar around midday on Monday, weaker than Friday's close of 6.2982. Before trading began, the PBOC set the yuan's daily midpoint at 6.3121 to the dollar, down 0.22 percent from Friday's 6.2980, the fixing's biggest single-day fall since late 2010. ECONOMY VS STRUCTURE Traders expect the yuan to appreciate this year but that the pace in the first half will slow to little more than one-third the rate a year ago as the government adjusts its policies to slowing growth and lower capital inflows. While the yuan is expected to continue its rise against the dollar this year, the rate may slow to 0.7 percent in the first half from 1.9 percent in the first half of last year, meaning the currency is expected to trade at around 6.25 per dollar by the end of June compared with 6.294 at end-2011. Facing the downdraft from global weakness, Wen in Monday's government report cut the country's growth target to 7.5 percent for 2012, lower than the longstanding goal of 8 percent annual growth. But China is still posting big trade surpluses, including a massive $27.3 billion in January, underlining the need for structural adjustments to shift the economy away from a reliance on exports to one driven more by domestic consumption and the need for the yuan to continue to appreciate, traders said. "Given deteriorating external conditions for China's exports, it is unrealistic to expect the yuan to appreciate at the same pace this year as last year," said a senior trader at a state-owned Chinese bank in Beijing. "But China has been adjusting its economic structure in recent years. As long as it still has a big trade surplus, it is likely to continue the efforts, letting the yuan rise slowly and gradually ridding the economy of its reliance on exports." In the offshore non-deliverable forwards (NDF) market, the benchmark one-year NDFs implied yuan appreciation of 0.42 percent late on Monday, down slightly from 0.51 percent they implied at Friday's close.