SHANGHAI: China’s yuan weakened against the dollar on Tuesday, as comments from a key central bank official bolstered expectations of policy easing to shore up demand amid a fragile economic recovery.
Zou Lan, monetary policy department head of People’s Bank of China (PBOC), said the central bank may use open market operations, medium-term lending facilities (MLF), and reserve requirements among other monetary policy tools to support reasonable growth in credit, state media reported late Monday.
“A key policymaker at the PBOC is laying the groundwork for more easing soon, likely to further stoke easing expectations and driving a pick-up in the offshore yuan activity overnight,” said analysts at Citi in a note.
“Zou made similar comments in July, lifting easing speculation at the time,” Citi analysts said.
The growing bets of more easing pushed yields on China’s benchmark 10-year government bonds below 2.5%, the lowest level since April 2020.
While China delivered a raft of policy support steps last year to shore up a stuttering post-COVID economic recovery, more measures are expected over the short term to stabilise growth.
Prior to the market’s opening, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.101 per US dollar, 4 pips weaker than the previous fix 7.1006.
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The spot yuan opened at 7.1558 per dollar and was changing hands at 7.1583 at midday, 54 pips weaker than the previous late session close.
Analysts at Maybank said they see depreciation risks of the offshore yuan against the dollar.
“While we do not look for any interest rate cut, a reserve requirement ratio (RRR) cut could be in the offing,” said Maybank analysts.
The global dollar index fell to 102.132 from the previous close of 102.209.
The offshore yuan was trading 63 pips weaker than the onshore spot at 7.1646 per dollar.
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