China has ample tools to stabilize the foreign-exchange market even if the yuan enters a “panic” slide, according to a commentary in the Chinese central bank-backed Financial News.
(Bloomberg) — China has ample tools to stabilize the foreign-exchange market even if the yuan enters a “panic” slide, according to a commentary in the Chinese central bank-backed Financial News.
The commentary, published late Wednesday, showcased the People’s Bank of China’s continuing campaign to reassure investors amid declines in the yuan that recently took it toward its weakest in 15 years against the dollar.
Among China’s tools are the foreign-exchange risk-reserves ratio, banks’ FX deposit-reserve ratio, the countercyclical factor used in determining the PBOC’s daily reference rate for the yuan and the adjustment of macroprudential factors for cross-border financing, according to the report.
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Yuan depreciation since mid-May has been due to short-term factors related to China’s economic recovery not meeting expectations in the market, it said.
The yuan has retreated over 5% against the dollar in the past three months, as the PBOC cut interest rates while the US Federal Reserve has hiked and indicated more moves to come. China has been moving to support the managed currency through setting stronger-than-expected daily reference rates for it.
Still, the PBOC-backed newspaper said that there’s a basis for stabilization in the yuan — and even appreciation — such as a sound overall trend for the economic recovery, along with policy support.
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Expectations in China’s foreign-exchange market remain stable, while cross-border flows remain basically balanced, the commentary said. It also described China’s yuan market as resilient.
The newspaper posted the commentary after the offshore yuan erased morning gains and declined for the first day in four, after a private-sector gauge of China’s service activities indicated a slowdown in June.
(Updates with details on daily fixing.)
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