China’s central bank keeps yuan steady

Picture: How Hwee Young

Picture: How Hwee Young

Published Jan 15, 2016

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Shanghai - China's yuan gained in early trade on Friday, while shares opened a tad lower, as fears of a market meltdown faded thanks to central bank action to bolster the currency during the week and trade data showed the economy may not be as weak as feared.

The turbulent start to 2016, with the currency and stock markets tumbling, had stoked concerns that Beijing's policymakers were in danger of fumbling as the country headed toward its slowest growth in 25 years.

The People's Bank of China (PBOC) set a slightly weaker mid-point rate for the yuan, but the fix has been broadly steady for more than a week, signalling a determination to hold the line against expectations of a sustained depreciation of a currency that has lost 5 percent of its value against the dollar since August.

The midpoint for the tightly managed currency was set at 6.5637 per dollar on Friday, weaker than the previous fix of 6.5616 but 253 pips stronger than Thursday's closing quote 6.5890.

The spot market was changing hands at 6.5868 in early trade, 21 pips firmer than the close. The spot rate is allowed to deviate 2 percent either side of the daily fix.

Offshore yuan liquidity was squeezed earlier in the week as a result of state-backed banks buying, at the central bank's behest, to push overnight borrowing rates in Hong Kong to record highs, making it prohibitively expensive to bet against the yuan.

That squeeze has narrowed the gap with the onshore market, though on Friday the offshore yuan was trading a little weaker, and 0.4 percent below the onshore spot at 6.6140 per dollar.

Asian share markets were buoyed early on Friday after oil prices ended an eight-day rout, though China's main stock indexes were slightly lower after a late rally on Thursday.

The Shanghai Composite Index was down 0.7 percent in early trade, while the CSI300 index was down 0.6 percent.

The indexes have lost about 15 percent so far in 2016 and are not far from their 2015 lows, chalked up during August after losing more than 40 percent from early June.

The August low might have been lower still, had regulators not wheeled out a raft of measures to support the market, and some think the 'National Team' would do the same again to stop the indexes breaching those levels.

Weekly data from the Shanghai Stock Exchange shows money shifting into exchange traded funds (ETFs) tracking bonds, gold and money markets at the start of January.

Some upbeat economic news has helped calm sentiment in the market, including forecast-beating trade and inward investment data, tempering some of the fears about the slowdown in the world's second-largest economy.

Even so, China's economic growth is expected to slow to 6.5 percent in 2016 from a forecast 6.9 percent in 2015, prompting the government to ease policy further, a Reuters poll showed.

REUTERS

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