China has ample tools even in ‘panic’ renminbi drop, PBOC paper says
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Declines in the renminbi recently took it towards its weakest in 15 years against the US dollar.
PHOTO: REUTERS
HONG KONG - China has ample tools to stabilise the foreign exchange market even if the renminbi enters a “panic” slide, according to a commentary in the Chinese central bank-backed Financial News.
The commentary, published late on Wednesday, showcased the People’s Bank of China’s (PBOC) continuing campaign to reassure investors amid declines in the renminbi that recently took it towards its weakest in 15 years against the US dollar.
Among China’s tools are the foreign exchange risk-reserves ratio, banks’ forex deposit-reserve ratio, the counter-cyclical factor used in determining the PBOC’s daily reference rate for the renminbi and the adjustment of macro-prudential factors for cross-border financing, according to the report.
The PBOC set its daily reference rate for the renminbi at 7.2098 per US dollar on Thursday, 360 pips stronger than the average estimate in a Bloomberg survey, extending its effort to stabilise the renminbi since last week.
The fixing limits the onshore renminbi’s moves by 2 per cent on either side.
The renminbi dropped by the most in a week towards a seven-month low on Wednesday, after a private-sector gauge of China’s service activities fell more than expected, while the dollar advanced on hawkish signals from the US Federal Reserve’s latest meeting minutes.
The currency depreciated more than 5 per cent in the past quarter versus the greenback as a weak economy prompted the PBOC to ease policy.
Renminbi depreciation since mid-May has been due to short-term factors related to China’s economic recovery not meeting expectations in the market, the report said.
Still, the PBOC-backed newspaper said that there is a basis for stabilisation in the renminbi – and even appreciation – such as a sound overall trend for the economic recovery, along with policy support.
Expectations in China’s foreign exchange market remain stable, while cross-border flows remain basically balanced, the commentary said.
It also described China’s renminbi market as resilient. BLOOMBERG
