China will widen the floating band of yuan against US dollar from 0.3 percent to 0.5 percent as of May 21, the People's Bank of China, or the central bank, announced on Friday.

"The higher flexibility indicated that the fluctuations of yuan will rely more on market forces. It's a good step forward in the correct direction, " said Zuo Xiaolei, an analyst with Galaxy Securities.

The central parity rate of yuan against US dollar has accumulatively appreciated by 5.54 percent since July 21, 2005, when China scrapped the yuan-dollar peg amid radical currency reforms.