BEIJING (REUTERS) - China's central bank has stepped up intervention in yuan trading, ordering state banks to buy yuan at designated rates on behalf of the monetary authorities, among other emergency measures, banking sources with direct knowledge of the matter told Reuters on Thursday.
The foreign exchange regulator, a unit of the central bank, recently issued a notice ordering its sub-bureaus to strengthen supervision so as to avoid major foreign exchange purchases and to conduct "window guidance", or administrative advice, to banks in case of necessity, the sources said.
"When market sentiment causes abnormal volatility, any regulatory bodies will intervene to help stabilise prices," said one source.
The central bank said during a news conference on Thursday that it had stopped "regularly" intervening in the foreign exchange market but would conduct "effective management" only in cases of extreme volatility.
The bank also announced that it would intensify monitoring of "abnormal" cross border flows.
The yuan fell for a third day on Thursday, after the PBOC shocked markets by devaluing the currency by 2 per cent on Tuesday, the sharpest adjustment in the history of China's foreign exchange market.
But Thursday's losses were slight, and the gap between the guidance rate and the traded spot market rate closed sharply as the central bank tried to slow a sharp selloff that saw the currency lose around 4 per cent in just two days.
"The sudden fluctuations of the yuan over the past few days have created many speculative positions and caused more settlement deals," said a dealer at a foreign bank in Shanghai. "Excluding those transactions by state banks on behalf of the central bank, dollar purchases apparently exceeding sales."
Banks have been asked to help monitor clients' foreign exchange transactions, said the sources, who have seen the notice by the State Administration of Foreign Exchange.
Seven major banks must be included in the monitoring, the notice was quoted as saying, while other can be selectively included.
The seven are China's biggest five state-owned banks, including the Industrial and Commercial Bank of China , as well as two major commercial lenders, CITIC Bank and China Merchants Bank, the sources quoted the notice as saying.
Contacted by Reuters, central bank and forex regulator officials declined immediate comments.
Banks designated to help the authorities to monitor foreign exchange transactions were required to record each deal by their biggest 20 clients during Aug. 12 to 14, the sources said.
In line with Beijing's orders, bank headquarters have also recently strengthened their own efforts to help curb the yuan's volatility, requiring their branches to report unusual movements, among other steps, the sources said.