BEIJING: China's yuan firmed against the dollar on Thursday but continued to trade far below the official daily guidance rate as markets remained bearish due to speculation that the central bank will loosen monetary policy further.
The spot market opened at 6.17 per dollar, up 0.11 percent from the previous close. The yuan was changing hands at 6.1718 at midday, 0.92 percent below the midpoint.
The prospect of the People's Bank of China cutting the reserve requirement ratio (RRR) for Chinese banks, which would flood the market with renminbi and drive down its value, hung over the market.
Analysts have predicted that the central bank could cut RRR as soon as this month in attempt to boost flagging economic growth, by further relaxing monetary policy after a surprise cut in loan and deposit rates in November.
The yuan had closed up 0.2 percent against the dollar on Wednesday as traders suspected central bank intervention to stabilise the currency after it fell 0.59 percent on Monday and Tuesday.
The PBOC followed up before trading opened on Thursday by setting a stronger midpoint rate for the yuan of 6.1153 per dollar, up 0.07 percent from the previous fix, and the strongest midpoint set since February.
The spot rate is currently allowed to trade 2 percent above or below the midpoint.
In the offshore market, not subject to the restrictions imposed onshore, the market is proving even more bearish.
Non-deliverable forwards traded at a nearly 3 percent discount to the fixing rate, indicating punters are betting on long-term weakness in the currency.
The offshore spot rate was 0.11 percent below the onshore rate.
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