China slows yuan’s rise on asset bubble concerns, signalling new battle against excessive appreciation

The People’s Bank of China (PBOC) has scrapped the reserve requirement for financial institutions conducting new foreign exchange forwards

The move followed a sharp appreciation of the yuan on Friday, indicating China’s central bank is keen to dampen excessive appreciation of the currency

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China’s currency has rebounded by about six per cent from this year’s low in May amid a weaker US dollar. Photo: Reuters

Published: 8:00pm, 12 Oct 2020Updated: 10:39pm, 12 Oct 2020

A decision by China’s central bank at the weekend to curb a rally in the yuan’s exchange rate signals concern over a rush of hot money fuelling an asset bubble amid heightened price risks in the country’s rapidly growing property market, according to analysts.

The move suggests the central bank was tweaking its policy stance on fears of excessive appreciation pressure on the yuan, following a sharp rise on Friday – the first working day following the “golden week” holiday – when it hit its strongest level in almost 18 months against the US dollar.

The yuan jumped 1.4 per cent on Friday, the largest daily gain in 15 years, driven largely by sentiment that Democratic candidate Joe Biden is increasingly likely to win the US presidential election on November 3, which could improve China-US relations, analysts said.

China’s currency has rebounded by about six per cent from this year’s low in May amid a weaker US dollar.

In response to the yuan’s sharp rise, the People’s Bank of China (PBOC) on Saturday said financial institutions would no longer need to set aside cash when purchasing foreign exchange for clients through currency forwards – financial contracts betting on the yuan’s future value – making it cheaper for investors to sell.