The PBOC said in a statement the rise in yuan loans was due to steady growth policy, demand for working capital, a real estate rebound and local government debt swaps.
The People’s Bank of China (PBOC) maintains tight control over the country’s currency – setting a daily rate for the yuan versus the dollar.
Also on Tuesday, China’s central bank devalued the yuan by almost 2% against the US dollar, a surprise move marking the biggest decline since the currency was unpegged from the greenback in 2005. Bloomberg said this was the biggest one-day loss since China unified official and market exchange rates in 1994.
“This could mean that prices could reach 2015 lows”, Singapore-based Phillip Futures said, although the brokerage added that it does not expect oil prices to fall below this year’s lowest point reached in January.
Investors reacted by selling the Australian dollar, often used as a liquid surrogate for the Chinese currency. Volatility increased across all commodities. Neither EconoTimes nor its third party suppliers shall be liable for any errors, omissions or delays in content, or for any actions taken in reliance thereon.
The PBOC said it believes it had to act now to combat the challenges of a strong currency, which it says in not in line with expectations.
Second, people may want to move their money out of China now that yuan is cheaper (no longer a good store of value).
Tuesday’s move sparked declines in the offshore yuan market and in currencies including the Australian dollar and the Korean won, and caused airline shares to fall, given the impact higher fuel prices will have on their bottom line.
“This came as emerging-market currencies have already been depreciating against the dollar”, he said, while pointing to the yuan’s relative stability in the past few months even as emerging market currencies ceded ground to a rising US dollar. July exports fell by an unexpectedly large margin of 8.3 percent from a year earlier, according to data released on the weekend.
After years of pushing for its currency to gain acceptance to a prestigious worldwide Monetary Fund currency basket, China has decided that it would rather use the yuan to boost its economy after all.
China’s economy expanded 7.4 per cent in 2014, its weakest rate since 1990, and has slowed further this year, growing 7.0 per cent in each of the first two quarters.
China’s bank lending rose in July, the central bank said on Tuesday, as money poured into a massive rescue for the country’s stock market.
“The reform of [yuan] exchange rate formation mechanism will continued to be pushed forward with a market orientation”.
The spot rate is the weakest since September 2012.