China’s Weakening Currency Is Becoming a Headache for Its Central Bank
China’s currency has weakened too far and too fast for its central bank. The onshore yuan, also called the renminbi, has lost around 4.8% of its value since the start of the year, according to FactSet. A dollar on Wednesday bought 7.2432 yuan in mainland China, a rate that is heading toward a 15-year low set last November.
The more freely traded offshore yuan was at 7.2542 per dollar, according to FactSet. The People’s Bank of China has started to respond, repeatedly setting a key daily reference rate at levels that defy market expectations. Economists use the yuan’s daily fixing as a gauge of how much the central bank is taking action to influence the yuan.
A day earlier, the currency was fixed at 7.2046 against the dollar, which analysts said was the biggest divergence this year from what markets were expecting. “The yuan’s weakness has gotten to a stage where they felt it’s overdone and therefore they have started to step in to send a clear signal that they are reining in the depreciation," said Khoon Goh, ANZ’s head of Asia research. The central bank’s response to the yuan’s recent weakness shows the delicate balancing act that will confront Pan Gongsheng, who is set to become the next governor of the People’s Bank of China.
The onshore yuan weakened past 7.30 against the dollar in November 2022, and the offshore yuan traded at its lowest-ever level then. The PBOC took a series of steps to prop up the value of the currency, including making it more expensive for companies in China to borrow foreign currencies. It now faces the choice over how far to go this time.
Read more on livemint.com
