SHANGHAI/SINGAPORE: China’s yuan steadied on Monday after slipping to near eight-month lows against the dollar at the end of last week, supported by the central bank’s intensified efforts to stabilise a much weakened local currency.
The People’s Bank of China (PBOC) said it will continue to keep the yuan basically stable and guard against the risk of large exchange rate fluctuations, in comments made after the second-quarter meeting of its monetary policy committee.
“In light of the recent rapid depreciation of the yuan, we think this statement implies PBOC might roll out policy measures to lean against depreciation in the next few weeks,” analysts at Goldman Sachs said in a note.
China’s yuan eases despite firmer-than-expected guidance fix
They expect the central bank might re-impose reserve requirement for FX forward sales, or adjust FX deposit reserve requirement ratio to try to slow the pace of depreciation should the yuan continue to weaken.
Widening yield differentials with other major economies, especially the United States, and a slowdown in China’s economy, drove the yuan down nearly 5% against the dollar so far this year - one of the worst performing Asian currencies.
While authorities were seemingly comfortable with the downtrend, a series of actions over recent weeks suggest Beijing is keen to avoid steep yuan declines.
Sources told Reuters that the PBOC has surveyed some foreign banks about the interest rates they offer to their clients for dollar deposits, as authorities stepped up efforts to slow the yuan’s depreciation.
In addition, similar to what was seen last week, the PBOC again set a stronger-than-expected official midpoint fix on Monday, with most investors considering it as another attempt to rein in excess yuan weakness.
The PBOC set the midpoint rate at 7.2157 per dollar prior to market opening, 101 pips firmer than the previous fix of 7.2258. The official guidance was 307 pips firmer than Reuters’ forecast of 7.2464.
The onshore yuan steadied from a near eight-month low of 7.2730 per dollar hit on Friday to trade at 7.2435 by midday, 75 pips firmer than the previous late session close.
“We continued to watch the fix versus expectations to gauge policymakers’ comfort level with the recent pace of depreciation,” said Christopher Wong, FX strategist at OCBC Bank.
“But such action probably can only slow the pace of yuan depreciation and not reverse the yuan weakening trend.”
Separately, market attention is likely to shift to US Treasury Secretary Janet Yellen’s trip to Beijing later this week for meetings with senior Chinese officials on a broad range of issues.
By midday, the global dollar index rose to 102.959 from the previous close of 102.912, while the offshore yuan was trading at 7.2541 per dollar.
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