China yuan’s pressure to ease, but ‘internal fundamentals’ remain amid coronavirus battle
- People’s Bank of China will cut the foreign exchange deposit reserve requirement ratio for banks by 1 percentage point to 8 per cent from next month
- The move is an attempt from the central bank to slow down the depreciation of the yuan and reduce the incentive to hold onto the US dollar
Moves to steady the yuan amid record outflows from Chinese stocks and bonds is seen as an effort to ease pressure on the currency, but may only affect sentiment, with “internal fundamentals” still a factor as China battles its worst coronavirus outbreak in two years.
It is an attempt from the central bank to slow down the depreciation of the yuan and reduce the incentive to hold onto the US dollar.
“The move will release more foreign currency liquidity into the onshore market and ease pressure on the yuan depreciation, coming on the back of recent measures to stabilise the market and prevent a hard landing to the economy as China struggles to contain the spread of Covid-19,” UOB Group said on Tuesday.
The move is a reversal of the last increase of the ratio in December, when the central bank was concerned about the yuan being too strong against the US dollar.