China’s yuan strength becoming ‘increasingly uncomfortable’ for Beijing amid economic slowdown

The weekly average of the gap between the People’s Bank of China’s (PBOC) daily yuan reference rate and market estimates widened to 68 basis points

This was the highest on record since Bloomberg started the survey with analysts and traders in 2018

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The weekly average of the gap between the People’s Bank of China’s (PBOC) daily yuan reference rate and market estimates widened to 68 basis points. Photo: EPA-EFE

Published: 6:55pm, 18 Mar 2022Updated: 7:14pm, 18 Mar 2022

China made its biggest push to weaken the yuan through its currency fixings this week as coronavirus-related curbs and rising commodity prices threatened to slow the economy.

The weekly average of the gap between the People’s Bank of China’s (PBOC) daily yuan reference rate and market estimates widened to 68 basis points, the highest on record since Bloomberg started the survey with analysts and traders in 2018.

The bulk of the move came on Monday and Tuesday, when the fixing deviated 150 pips and 129 pips respectively from forecasts.

The weaker fixings are a reminder of the PBOC’s intolerance of the yuan’s relentless advance, especially at a time when the resurgence of virus cases, rising geopolitical risks and the spike in commodity prices threaten to undermine the “around 5.5 per cent” growth target this year.

Clearly the authorities are becoming increasingly uncomfortable with yuan strength at a time of slowing economic momentum

Mitul Kotecha

They could also help correct the divergence in the onshore and offshore yuan, a former State Administration of Foreign Exchange said.

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