Yuan extends loss as tepid economic data adds to concerns

Weak loans growth in July raises expectations the central bank may need to ease monetary policies further

PUBLISHED : Monday, 15 August, 2016, 11:09am
UPDATED : Monday, 15 August, 2016, 10:35pm

The yuan extended losses on Monday, as weak bank loans data in July added to China’s economic woes and raised expectations that the government may have to ease monetary policies further to maintain growth.

Onshore yuan in Shanghai weakened 0.11 per cent, or by 76 points, to 6.6400 against the US dollar as of 7.45pm. Offshore yuan strengthened 0.05 per cent, or by 35 pips, to 6.6478 per US dollar.

The People’s Bank of China on Monday set the yuan fixing price at 6.6430, 113 pips or 0.16 per cent stronger from the last trading day on Friday.

China’s new bank loans growth in July was only 463.6 billion yuan, half the amount estimated in a Bloomberg survey. The M2 growth also slowed to 10.2 per cent in July, slower than the 11.8 per cent clip reported in June.

The data came after the onshore yuan last week strengthened 0.31 per cent to close at 6.6324 on Friday while offshore yuan gained 0.21 per cent to 6.6513 for the week.

The tepid economic growth added to market expectations that the central bank will either have to cut interest rates or slash the required reserve ratio.

“Now the markets are back to playing the PBOC rate cut game, one has to wonder about the real effectiveness of additional monetary stimulus as China may be caught in a liquidity trap, with policy makers left to juggle some frangible concessions,” Stephen Innes, senior trader at Oanda Asia Pacific, wrote in a note.

As the International Monetary Fund said last week that China’s authorities see interest rate levels as appropriate, there may be limited opportunity for any action by the PBOC to create undue concern before the yuan is included in IMF’s Special Drawing Rights basket in October, Innes said.

“Trading in the yuan remains subdued. I suspect the proximity of October’s SDR inclusion date has more to do with traders anticipating the tight ranges and their aim to hold until then,” Innes said.

The pound sterling strengthened slightly, up 0.09 per cent to US$1.2907 in the afternoon, while the yen added 0.21 per cent to 101.08 per US dollar.