No need for ma­jor econ­omy steps amid yuan drop: Zhou

The Pak Banker - - COMPANIES/BOSS -

The off­shore yuan de­clined the most in two weeks af­ter China's cen­tral bank gov­er­nor said ma­jor mea­sures weren't needed to boost growth even as data re­leased over the week­end pointed to a slow­ing econ­omy.

The cur­rency has re­turned to a more "nor­mal, ra­tio­nal and fun­da­men­tals-driven" trend, Zhou Xiaochuan told re­porters on Satur­day, adding that ex­ces­sive mon­e­tary stim­u­lus isn't nec­es­sary to achieve the na­tion's ex­pan­sion tar­get of at least 6.5 per­cent over the next five years. He said also that he's un­able to fore­cast if the yuan's volatil­ity will end. The dol­lar's 14day rel­a­tive-strength in­dex against the off­shore yuan neared a level on Fri­day that in­di­cates to some traders that the green­back will strengthen.

The Chi­nese cur­rency traded in Hong Kong re­treated 0.18 per­cent, the most since Feb. 16, to 6.4935 a dol­lar as of 6:42 p.m. lo­cal time, prices com­piled by Bloomberg show. It rose 0.35 per­cent on Fri­day to the strong­est level since early De­cem­ber. The yuan in Shang­hai was lit­tle changed, as was the Peo­ple's Bank of China daily fix­ing, which re­stricts on­shore moves to 2 per­cent on ei­ther side.

"The yuan's gain on Fri­day was quite sharp and it's go­ing through some ad­just­ments now," said Kenix Lai, a for­eignex­change an­a­lyst at Bank of East Asia Ltd. in Hong Kong. "The mar­ket was also dis­ap­pointed by Zhou's com­ments as in­vestors were ex­pect­ing more in­ter­e­strate and bank re­serve-re­quire­ment-ra­tio cuts to shore up growth be­cause eco­nomic fun­da­men­tals are quite weak."

The na­tion's in­dus­trial out­put climbed 5.4 per­cent from a year ear­lier in Jan­uary and Fe­bru­ary, the Na­tional Bureau of Sta­tis­tics said Satur­day, com­pared with the 5.6 per­cent me­dian es­ti­mate of econ­o­mists sur­veyed by Bloomberg. Retail sales climbed 10.2 per­cent from a year ear­lier, miss­ing the 11 per­cent pro­jected gain, while fixed-as­set in­vest­ment ex­ceeded es­ti­mates with a 10.2 per­cent in­crease.

The CFETS RMB In­dex dropped to the low­est level since the gauge was un­veiled in De­cem­ber as of Fri­day, ac­cord­ing to data re­leased Mon­day. This sug­gests that the yuan is weak­en­ing against the bas­ket.

The yield on govern­ment bonds due Jan­uary 2026 was un­changed at 2.86 per­cent, data from the Na­tional In­ter­bank Fund­ing Cen­ter show. The seven-day re­pur­chase rate, a gauge of in­ter­bank fund­ing avail­abil­ity, fell one ba­sis point to 2.27 per­cent, ac­cord­ing to a weighted av­er­age from Fund­ing Cen­ter.

In Hong Kong, the one-week yuan in­ter­bank rate fell 23 ba­sis points to 1.95 per­cent, the low­est since May 2014, Trea­sury Mar­kets As­so­ci­a­tion fix­ings show. The three-month rate de­clined 29 ba­sis points to 3.53 per­cent, the low­est since Oc­to­ber, while the one-month dropped 20 ba­sis points to 2.87 per­cent.

The PBOC's po­si­tions for for­eignex­change pur­chases fell by 228 bil­lion yuan ($35.1 bil­lion) to 24 tril­lion yuan last month, ac­cord­ing to Bloomberg cal­cu­la­tions based on the mon­e­tary au­thor­ity's bal­ance sheet. That com­pares with a 644.5 bil­lion yuan de­cline in Jan­uary and a 708 bil­lion plunge in De­cem­ber. A gauge mea­sur­ing the dol­lar's strength against its 10 ma­jor peers fell the most in 10 months in Fe­bru­ary.

"Be­cause the dol­lar was weaker in Fe­bru­ary, the cost for the PBOC to keep the ex­change rate sta­ble was smaller and cap­i­tal out­flows eased," said Liu Dongliang, a Shen­zhen-based an­a­lyst at China Mer­chants Bank Co. "But this doesn't mean the ex­pec­ta­tion for the yuan to drop fur­ther has van­ished. The cur­rency will likely weaken and be more volatile as the Fed­eral Re­serve may boost in­ter­est rates again.

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