Yuan defence boosted

Stronger fix, verbal warning among methods used

BEIJING: China has beefed up its defence of the sliding yuan, with the authorities releasing the strongest fixing on record relative to forecasts and issuing verbal warnings to short sellers.

The currency fell. The People’s Bank of China (PBOC) fixed the yuan at 6.9396 (RM4.53) per dollar, 647 pips stronger than the average estimate in a Bloomberg survey of analysts and traders.

That exceeded the record of 598 pips made last Wednesday. State media said last week companies shouldn’t bet on the direction and extent of currency moves, and the yuan will remain basically stable after its recent depreciation.

The escalation in the PBOC’S defence comes at the start of a week filled with global central bank meetings, during which the Federal Reserve and Bank of England are expected to raise rates to combat inflation.

That will place China’s loose monetary policy further apart from its major peers, a move that would undermine the attractiveness of yuan-denominated assets.

The yuan weakened past the seven level in both onshore and offshore trade last week, challenging policy makers’ tolerance for volatility before a twice-a-decade party reshuffle next month.

Declines in the yuan have accelerated over the past month as the dollar has surged and China’s economy slowed due to Covid lockdowns and a housing-market crisis.

The best China’s “policy response can do is to slow the pace of the yuan’s depreciation but not reverse it, as weak China macro-fundamentals and dollar trend will overwhelm,” said Christopher Wong, a foreign-exchange strategist at Oversea-chinese Banking Corp in Singapore.

China made its latest effort to jawbone the yuan on Friday.

The currency will remain basically stable as pressures that led to short-term depreciation were already priced in, state-run CCTV reported Friday, citing an official close to the PBOC. “There will not be a one-sided market for the exchange rate,” the official said, adding that two-way fluctuations will be normal and the central bank will curb speculation.

In another report Friday, China’s foreign-exchange regulator urged companies not to bet on the direction and extent of any currency moves.

Short-term fluctuations of yuan are hard to forecast and firms should “refrain from speculative trading,” Wang Chunying, deputy administrator of the State Administration of Foreign Exchange, said in an interview with CCTV.

The yuan isn’t the only victim suffering from a jumping dollar.

The 2.6% drop in the Chinese currency over the past month is smaller than declines of more than 4% for the yen and South Korean won.

The onshore yuan declined 0.6% to 7.0099 yesterday, while the offshore rate fell 0.2%.

“The best China’s policy response can do is to slow the pace of the yuan’s depreciation but not reverse it.”

Christopher Wong