“The stock market crash provoked concerns about China’s slack economy“, said a trader at an Asian bank in Hong Kong.
As China faces capital outflow and currency depreciation pressures, a strategy of preventing the yuan from weakening by intervening may consume a lot of China’s “hard-earned” foreign exchange reserves, Yu Yongding, a former academic member of the monetary policy committee at the People’s Bank of China, said on Monday.
The reverse repo was priced to yield 2.5 percent, unchanged from the yield on a net injection last week of 150 billion yuan using reverse repos, according to a PBOC’s statement.
It is a continuation of what the bank on Tuesday called a “one-time correction” of almost 2pc, part of a move to make the yuan closer to a free-floating currency whose value is determined by the markets.
China’s central bank cut interest rates and banks’ reserve requirements for the second time in two months yesterday.
Now, policymakers have said they are giving the market a bigger say by basing the official exchange rate setting on the currency’s trading performance, not just on a government decree.
The offshore yuan CNH=D3 was trading 1.14 percent lower than the onshore spot at 6.493 per dollar.
At least Beijing isn’t wasting its crisis.
For interest rates on demand deposits and short-term deposits with terms a year or less, banks can charge as much as 150 percent of benchmark rates, the PBOC said.
“An effective devaluation of an overvalued yuan will not only benefit stable growth of the Chinese economy, but also maintain the yuan’s competitiveness”, Massachusetts wrote.
Some Chinese agencies have begun to assume the yuan will weaken further to 7 against against the US dollar by the year’s end in their research, Bloomberg reported, citing unnamed sources. As it stands, that basket includes the US dollar, the British pound, the euro, and the Japanese yen. The central bank sets the reference rate every morning and allows the currency to move upto 2 percent from that level.