SHANGHAI: China’s yuan currency slightly firmed against the US dollar by Wednesday’s domestic session close, after the country’s central bank said it would cut the amount of cash that banks must hold as reserve to shore up the economy.
People’s Bank of China (PBOC) will cut the reserve requirement ratio (RRR) for all banks by 50 basis points (bps) from Feb. 5, PBOC governor Pan Gongshen said, the first such cut for the year as policymakers extend efforts to shore up a fragile economic recovery.
Meanwhile, offshore yuan tomorrow-next forwards stayed as high as 3.2 on Wednesday, reflecting tight liquidity in the offshore market.
The still-elevated offshore yuan implied tomorrow-next level together with the recent open market operation pattern offers some clues on China’s policy stance, which is to slow down currency depreciation even if it makes short-term funding more expensive, UBS analysts said in a note.
Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate around which the yuan is allowed to trade in a 2% band, at 7.1053 per US dollar, 64 pips firmer than the previous fix 7.1117, and nearly 800 pips stronger than Reuters’ estimate.
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