Yuan hits three-month high after China hints at tighter monetary policy
Beijing to curb risky lending despite spectre of slowdown in economic growth
The yuan rose to its highest level against the US dollar in three months on Thursday, after China’s Central Economic Work Conference triggered expectations of tighter monetary policy and cuts to risky lending in financial markets and the economy.
“China will fight the critical battle of addressing major risks, with the priority on managing and preventing financial risk over the next three years,” according to a statement carried by state news agency Xinhua, at the conclusion of the three-day closed-door meeting.
The comments suggest the government is determined to deleverage financial markets and the economy, to cut down on risky lending behaviour despite it leading to a slowdown in economic growth, and point to further tightening of monetary policy, analysts said.
“It looks like the case of a higher yuan next year, as expectations are growing for tighter monetary policy,” said Jimmy Zhu, chief strategist at online brokerage Fullerton Markets. “Tighter policy and less liquidity favours its own currency.”
Reflecting expectations of tighter liquidity conditions and higher interest rates, the onshore yuan jumped to 6.5712 against the US dollar on Thursday, its highest level since September 20. The currency has appreciated by 5.3 per cent this year versus a depreciation of 6.9 per cent last year.