China’s cen­tral bank fix gives yuan room to move

Yuan hits strong- side limit on sec­ond trade

The Pak Banker - - Front Page -

SHANG­HAI

The yuan hit a record high on Mon­day as per­sis­tent dol­lar sell­ing by Chi­nese cor­po­rates drove the spot rate to its max­i­mum daily limit un­der China’s man­aged float regime, af­ter the cen­tral bank set an un­usu­ally strong of­fi­cial daily mid­point.

The yuan has ap­pre­ci­ated 1.0 per cent so far this year, re­vers­ing a de­pre­ci­a­tion of as much as 1.6 per cent in the year by late July, but the ap­pre­ci­a­tion would have been greater if the cen­tral bank had not kept the mar­ket in check, ei­ther through its mid­point fixes or sus­pected in­ter­ven­tion.

On Mon­day, the Peo­ple’s Bank of China (PBOC) fixed the mid­point at 6.2920 per dol­lar, the strong­est the yuan has been fixed at since May. On Fri­day the mid­point was fixed at 6.3012 yuan to the dol­lar.

The spot ex­change rate, which is al­lowed to rise or fall by 1 per cent away from the mid­point on any given day, took full ad­van­tage of the new room.

The yuan opened at 6.2310 to the dol­lar be­fore swiftly mov­ing to hit the yuan’s strong- side limit at 6.2291. The spot rate had closed at 6.2450 yuan to the dol­lar.

It was the yuan’s strong­est open and in­tra-day trad­ing level since China opened its do­mes­tic cur­rency mar­ket in 1994.

The cen­tral bank has been try­ing to re­strain the yuan by fix­ing mid­points that held the mar­ket back, but as a con­se­quence the spot rate has re­peat­edly struck the yuan’s strong­side limit ev­ery day for over two weeks.

Some mar­ket an­a­lysts be­lieve the cen­tral bank should bow to mar­ket pres­sure by widen­ing the trad­ing band, while oth­ers say the dol­lar sell­ing will sub­side soon and the cen­tral bank can af­ford to wait un­til China’s in­com­ing new lead­ers roll out more re­forms.

Off­shore one- year non­de­liv­er­able yuan for­wards have con­sis­tently fore­cast de­pre­ci­a­tion of be­tween 1.6-1.8 per cent in the next twelve months.

Traders said they sus­pect that the cen­tral bank was in­ter­ven­ing through ma­jor state banks to buy up the dol­lars at the end of last week.

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