China’s yuan falls to 13-month low after cabinet’s growth support comments

China’s yuan fell to a 13-month low on Tuesday because of budding expectations for a U-turn in economic policies that will support economic growth amid the continued US-China trade war after Beijing pledged for a more proactive fiscal policy and to keep macro policies steady.

On Monday, the State Council, China’s cabinet, also indicated plans to accelerate the issuance of 1.4 trillion yuan (US$207 billion) in special bonds by local governments to underwrite investment in infrastructure. The People’s Bank of China also lent 502 billion yuan to financial institutions via its one-year medium-term lending facility (MLF) to increase loans to companies.

The State Council comments and the MLF triggered expectations that policymakers would roll out more stimuli and further cut reserve requirement ratios in the coming weeks, shifting away from the past year’s deleveraging campaign to curb risky lending that had created tight cash conditions.

Onshore yuan was changing hands at 6.8073 to the US dollar on Tuesday, down 0.13 per cent from the previous day and hitting its weakest level since June 2017. It is mid-ranked among Asia’s 11 most traded currencies, the fifth worst performer so far this year.

The unexpected decision by China’s central bank to allow the yuan to break below the 6.7 per dollar level in the past week also signalled greater tolerance from the Chinese authorities for further downside, and that they were in no hurry to prop up the currency.

“Compared to the panic selling after the Chinese yuan fixing reform in 2015, capital outflows are taking a back seat and China is enjoying the advantages of a weaker currency,” said Ken Cheung, senior Asian currency strategist at Mizuho Bank.