PBOC able to keep yuan ‘basically stable’
Print Edition
CHINA’S central bank is capable of keeping the yuan “basically stable at a reasonable equilibrium level” in spite of “speculating forces,” the People’s Bank of China said yesterday.
The reassurance came as the currency’s central parity rate lost 332 basis points yesterday to 6.5646 against the US dollar, the lowest level since March 18, 2011.
The yuan shed 0.55 percent from Wednesday to close at 6.5939, according to the China Foreign Exchange Trading System. Since the start of the year the yuan has depreciated 1.1 percent.
The yuan can rise or fall by 2 percent from the central parity rate each trading day onshore.
On the freely traded offshore market, the yuan strengthened the most in two weeks and rebounded to around 6.68 from a five-year low of nearly 6.74 to the US dollar.
The yuan’s exchange rate is supposed to go along with market forces, which should be the demand and supply of foreign exchanges based on the real economy, instead of speculating forces using excessive leverage, the PBOC said in an editorial on its website.
“Some forces attempt to make profit from speculating on the yuan. This kind of trading is unrelated to the demand of the real economy and does not reflect the real market demand and supply, which only leads to abnormal fluctuations in the yuan’s exchange rates and sends the wrong signals to the market,” it said.
“Faced with the speculating forces, the central bank has the capabilities to keep the yuan basically stable at an reasonable equilibrium level,” it added.
The yuan will go with changes of demand and supply in the market, and its exchange rates will change in both directions, it said.
In addition to the central bank’s determination to keep the yuan stable, the conditions are there for the currency to stay basically stable, said the article, citing the steady overall economy.
“Even as China’s export growth declined in 2015, the share of the country’s exports in the global total has still increased. There is no necessity for China to stimulate export and stabilize growth through competitive currency depreciation,” it said.
The central bank foresees “some uncertainty” concerning the exchange rates of the US dollar in the following period, and the impact of the US Fed’s interest rate hike has largely digested by the market.
The PBOC pointed to the fundamentals of China’s economy as a long-term factor that will prop up the yuan.
There is no foundation for the yuan’s continuous depreciation and it remains a strong currency among international reserve currencies, it added.
The central bank implied it also took action to deter speculators offshore that exacerbated the yuan’s devaluation to an unreasonable level.
HSBC yesterday said the PBOC’s recent central parity rates showed a greater tolerance for yuan depreciation onshore but its action in the offshore market could also indicate it sought to have the onshore and offshore rates converge.
“Intervention in this context is not incongruous to the PBOC’s goal of a flexible currency regime,” HSBC said. “Such a behavior pattern — allowing the onshore spot to adjust faster while capping the offshore rate at the same time — could indicate the central bank is attempting to find a near-term market equilibrium in onshore yuan that can help the onshore and offshore exchange rates converge.”
HSBC said the PBOC will continue to create a “floating regime” for the exchange rate and reduce intervention in the foreign exchange market.
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