HONG KONG: China’s yuan weakened on Wednesday, as investors awaited further direction on lending benchmark rates that could hold the key to injecting more momentum into the country’s post-COVID recovery.
Trading was subdued in a tight range, with volume dropping to $11.1 billion around midday compared with an average of $15 billion.
China will set its benchmark lending rates, the one-year and five-year loan prime rates (LPRs) on Thursday.
Used in the pricing of retail and corporate loans, the LPRs are published by the central bank on the 20th of every month. The benchmarks had stayed unchanged for the seventh straight month in March.
Some analysts believe China’s faster-than-expected economic expansion in the first quarter of 4.5 % year-on-year, and strong March retail sales data have reduced the chance for Chinese banks to cut LPRs, and also makes any imminent cuts by its central bank unlikely.
“With indicators such as infrastructure investment pointing to China’s recovery staying on track, I don’t expect there would be any imminent cut to other interest rates, such as the reserve requirement ratio (RRR),” said Kiyong Seong, lead Asia macro strategist at Societe Generale.
RRR is the amount of cash that banks must hold as reserves. The central bank last cut the ratio in March.
Spot yuan opened at 6.8771 per dollar and was changing hands at 6.8774 at midday, 8 pips away from the previous late session close and 0.06% away from the midpoint.
The People’s Bank of China set the midpoint at 6.8731 per US dollar prior to market open, firmer than the previous fix of 6.8814.
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The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day.
Still, some analysts expect the People’s Bank of China to lower rates if the US Federal Reserve halts or signals an end to its cycle of rate rises.
On Tuesday, Federal Reserve Bank of Atlanta President Raphael Bostic said he expects the central bank to raise interest rates once more prior to holding rates steady for an extended period.
The Fed’s next meeting is May 2-3.
For now, the yuan is expected to trade narrowly.
“We see no urgency for the yuan to push out of its month-long range between 6.85 and 6.9,” said Philip Wee, senior FX strategist at DBS.
The global dollar index rose to 101.771 from the previous close of 101.745.
The offshore yuan was trading 0.07% weaker than the onshore spot at 6.8824 per dollar.
The one-year forward value for the offshore yuan traded at 6.7145 per dollar, indicating a roughly 2.50% appreciation within 12 months.
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