PBOC RAISES YUAN REFERENCE RATE
Selling of US dollars by major state-owned banks has helped strengthen the Chinese currency, say traders
CHINA’S central bank yesterday pushed the reference rate for the yuan up by 0.8 per cent, the midpoint’s second-largest one-day appreciation since the currency was de-pegged from the dollar in 2005, as it wages war on depreciation expectations.
The spot rate followed suit, crossing the 6.8 per US dollar level for the first time since November 11 to trade at 6.7896 at 0450GMT.
Traders said major stateowned banks were selling US dollars, which helped keep the yuan strong.
Many market participants believe US dollar selling by the biggest state-owned banks in recent weeks has been a key part of government efforts to support the exchange rate.
The yuan has been guided 1.5 per cent higher against the US dollar since May 24, when Moody’s Investors Service downgraded China’s sovereign credit rating for the first time since 1989.
In the offshore market, the currency has strengthened by two per cent over that period.
“The People’s Bank of China (PBoC) has let the yuan bulls loose in the China shop,” said Stephen Innes, senior trader at Oanda in Australia. “Needless to say, the market was a tad shellshocked this morning while searching for some policy clarity from the PBoC.”
Chinese stocks and yuan have risen since the Moody’s Investors Service downgrade, and some analysts believe the hand of the state was behind moves designed to dissuade bears.
The government last week announced a proposed new methodology for setting the yuan’s midpoint, around which the currency was allowed to trade as much as two per cent up or down.
Traders and economists believe this would give the central bank more leeway to fix the rate as it sees fit. Reuters