The yuan regime change on Tuesday has resulted in a sharp depreciation of the exchange rate on the back of one-sided expectation of more declines. The risk of destabilising capital flows is rising steeply. A day later, the People's Bank of China reportedly intervened in the market just before the close. At the moment, it is hard to see the possibility of yuan stabilising soon, according to Societe Generale. "Unless the PBOC recants on its decision, it has to keep intervening, potentially very heavily, to stem the slide of the [yuan]," it said. "In that case, the official [foreign] reserves would drop very quickly and cuts in [the reserve requirement ratios] would be needed to offset the drain on domestic liquidity."
