China's yuan fell slightly against the US dollar on Monday after a weaker official midpoint fixing, and on views that the central bank will stick to a very modest and gradual pace of monetary tightening to avoid hurting economic growth. China's central bank surprised markets by raising short-term interest rates for the third time in as many months last week, in what economists said was a bid to stave off capital outflows and keep the yuan stable after the Federal Reserve raised US rates hours earlier.
However, while China's leaders have made tackling debt risks a major priority this year, most traders expect only small tightening steps in 2017 as authorities proceed cautiously. Heavy stimulus was required last year to get the economy back on steadier footing.
The People's Bank of China set the midpoint rate at 6.8998 per dollar prior to market open, weaker than the previous fix 6.8873.
In the spot market, the yuan opened at 6.9060 per dollar and was at 6.9043 as of 0830 GMT, 13 pips weaker than the previous late session close and 0.07 percent softer than the midpoint.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, weakened to 94.1 on Monday, the lowest level since September 2014.
The offshore yuan was trading 0.17 percent firmer than the onshore spot at 6.8928 per dollar as of 0830 GMT.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 7.114, 3.01 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.
"The increase in short-term interest rates by the central bank last week was just a one-off knee-jerk reaction to the Fed's rate decision, and the impact has quieted down now," said a trader at a Chinese bank in Beijing.
The Fed is not expected to raise rates again for at least another three months.
"China will not in rush to hike benchmark lending and deposit rates any time soon given muted inflationary pressure as well as demand for economic stability prior to 19th Party Congress," OCBC analysts said in a note on Monday.
Published under arrangements with Reuters.
No content from Business Recorder shall be reproduced, published, broadcast, rewritten for broadcast or publication, or redistributed directly or indirectly in any medium.
Business Recorder shall not be responsible or held liable for any error of fact, opinion or recommendation and also for any loss, financial or otherwise, resulting from business or trade or speculation conducted, or investments made, on the basis of the information posted here. Nor shall Business Recorder be held liable for any actions taken in consequence." >Copyright Reuters, 2017