Yuan regains ground lost after PBOC decision to pump up liquidity in China’s banking system

PUBLISHED : Tuesday, 01 March, 2016, 1:12pm
UPDATED : Tuesday, 01 March, 2016, 1:12pm

The offshore yuan bounced back on Tuesday morning in Hong Kong, reversing part of its decline on Monday after China’s central bank announced changes in banking reserve requirements designed to pump up new lending.

The offshore yuan traded at 6.5434 at 11.15am on Tuesday, rebounding 0.12 per cent from levels late Monday.

The People’s Bank of China on Tuesday set the daily reference rate at 6.5385 per US dollar, 67 basis points stronger from Monday’s fixing. On Monday, the PBOC set the daily yuan rate 114 basis points down from its fixing on Friday, marking the biggest fall in nearly two months.

The yuan traded at a three-week-low of 6.5585 per dollar by late afternoon Monday following the PBOC decision to increase yuan liquidity by lowering the amount of deposits banks must hold in reserve by 0.5 percentage point.

This is the first RRR cut since October and follows PBOC Governor Zhou Xiaochuan’s comment on prudent but moderately loose monetary policy made on the sidelines of conclusion of the G20 meeting on Sunday.

Barclays said in a research note on Tuesday that it expects the PBOC will unveil additional moves to boost yuan liquidity, including two more 50-basis point reductions in the RRR and two 25-basis point benchmark interest rate cuts in the first half of 2016.

The onshore yuan also bounced back on Tuesday to trade at 6.5398 at 11.15am, stronger by 0.19 per cent from Monday.

The Hong Kong dollar traded stronger by 0.06 per cent against the US dollar at 7.7723 at 11.15am on Tuesday.

The PBOC set the yuan midprice against the euro at 7.1211 on Tuesday, stronger by 332 basis points, and set the yuan midprice against per 100 yen at 5.8208, weaker by 578 basis points and against the pound at 9.1159, weaker by 382 basis points.