SHANGHAI-Chinait’s major State-possesses banks were seen actively to clean up THE off the coast yuan Monday, three people with knowledge of the case said, as the currency is coming under increasing pressure from the darkening economic outlook and tensions in the real estate sector.
State banks often act as agents for Chinathe central bank of off the coast foreign exchange market, but they could also trade for their own account or execute their clients’ orders.
Contraction up off the coast yuan liquidity could also contribute to stabilizing the yuansaid one of the sources.
This decision effectively increased the cost of shorting Chinese securities. yuanat a time when the local unit is facing increasing depreciation pressure.
Following the State bank move, off the coast yuan rallied and was last trading around 7.2834 to the dollar, up about 0.3 percent on the day. The terrestrial yuan was also firmer at around 7.28 to the dollar.
THE yuan The dollar has weakened more than 5% against the greenback since the start of the year, reflecting growing concerns over the prospects of the world number two. economy.
Earlier Monday, China cut its benchmark one-year interest rate as authorities seek to raise it up efforts to boost credit demand, but surprised markets by keeping the five-year rate unchanged amid broader concerns about a rapid weakening currency.
“Probably China “They have limited the size and scope of rate cuts because they are worried about the downward pressure on the RMB (renminbi),” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management. .
“The Chinese authorities care currency market stability.
Just this month, the yuan weakened nearly 2 percent against the greenback.
The cost of the short sale of the yuan jumped, the State banking sources told Reuters, as seen of a sudden increase off the coast yuan tomorrow-next advanced points.
Use currency swaps to increase the cost of short selling the currency is the key tool that authorities have used in the past to influence the direction of the yuan.
During the London trade, off the coast yuan attackers jumped across the board amid signs of yuan liquidity crunch, with several banking sources attributing the liquidity crunch to activity in banks.
The one-month dollar/yuan futures contracts traded off the coast reached the highest level for a year.
Sources told Reuters last week that Chinait’s major State-possesses banks were seen busy selling US dollars to buy yuan on the ground and off the coast spot foreign exchange markets, with the aim of stopping the yuanQuick losses.
“The PBOC (Popular Bank of China) has visibly progressed up its efforts to curb the renminbi’s depreciating trend of late, but Beijing’s reluctance to agree to more drastic monetary and fiscal stimulus means that the exchange rate will necessarily have to bear some of the burden of the renminbi’s depreciation.upcarry the troubled economy through further depreciation,” Alvin Tan, head of Asia foreign exchange at RBC Capital Markets, said in a note.
Earlier Monday, UBS reduced its China Real GDP growth is projected to range from 5.2% to 4.8% in 2023.
As long as uncertainty about the direction of Chinese efforts toward the shore up the economy remained, the sentiment of foreign investors towards China Overall, it would likely remain cautious, analysts said.
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