SHANGHAI: China's yuan barely moved against the dollar on Monday, as the market took its cue from a flat central bank fixing, a sign that the government wants to keep the yuan stable for now following its recent bout of depreciation.
Spot yuan stood at 6.2253 per dollar at midday, 0.02 percent weaker than Friday's close, after the PBOC fixed its midpoint at 6.1591, down only 0.01 percent from Friday.
The yuan has depreciated 2.75 percent against the dollar since the start of this year under the guidance of the People's Bank of China (PBOC).
This bout of weakness has helped to ease strong capital inflows into the country in March for the second straight month, central bank data published on Friday showed.
The depreciation is due in part to apparent central bank intervention earlier this year in the form of dollar purchases by state banks, though traders say such purchases have diminished in recent weeks.
"By keeping the midpoint relatively stable, the PBOC has signalled that it doesn't intend to let the yuan fluctuate much for now," said a dealer at a Chinese commercial bank in Shanghai.
China's apparent move to weaken the yuan would have required increasing dollar purchases in the short term. But the long-term goal is to reduce foreign exchange inflows, as the country's already-huge foreign exchange stockpile carries increasing costs, traders say.
"Deterring speculative hot money inflows is exactly what the central bank wanted to achieve by engineering the yuan's depreciation this year."
The recent shift to holding the currency steady further suggests efforts to deter speculative bets on the yuan's rise. Thus, traders said the yuan was likely to move mainly between 6.20 and 6.25 against the dollar in the coming weeks.
HUGE RESERVES
The PBOC and commercial banks together bought a moderate 189.2 billion yuan ($31 billion) worth of foreign exchange on a net basis in March.
That followed net purchases of 128.2 billion yuan equivalent in foreign currencies in February, the lowest amount of monthly purchases since September, according to Reuters' calculations based on the central bank's data.
China has accumulated huge foreign exchange reserves of nearly $4 trillion, the world biggest, and the costs of PBOC's intervention into the market are increasing.
The authorities have found few profitable investment channels for the huge stockpile, and China's estimated $1.3 trillion holdings of US Treasury securities are widely believed to have caused mark-to-market losses to the central bank's balance sheet.
In the latest sign that the government is quietly trying to diversify its foreign investments, China has begun allowing gold imports through its capital Beijing, the third import point after Shenzhen and Shanghai.
"The wider opening for gold imports signals China's strategy to diversify investment channels for its foreign exchange reserves," said a trader at a European bank.
"At the same time, it will further slow capital inflows into China, including lessening a flow back of dollars from the country's Treasury holdings."
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