China makes it easier for firms to borrow from overseas amid plunging renminbi

The People's Bank of China on Tuesday set the daily reference rate for the yuan at the weakest level since 2008. PHOTO: REUTERS

SHANGHAI – China’s central bank has adjusted rules to allow companies to borrow more from overseas, enabling more foreign capital inflows at a time when the currency is plunging to fresh 14-year lows against the United States dollar.

The People’s Bank of China (PBOC) raised the so-called macro-prudential parameter for companies and banks’ cross-border financing to 1.25 from 1, to increase their source of funding, the central bank said in a statement on Tuesday.

Raising the parameter will allow companies to borrow more from overseas markets.

The offshore renminbi fell to a fresh record low on Tuesday after the PBOC loosened its grip on the tightly controlled fixing by setting the rate at the weakest level since 2008.

The currency tanked as much as 0.6 per cent to 7.3686 per US dollar in overseas trading, a level unseen since the offshore trading started in 2010. The move came after the PBOC set its fixing at the weakest level since the global financial crisis, a sign that Beijing is allowing the currency to depreciate amid a rally in the US dollar.

The onshore renminbi was 1.99 per cent weaker than the PBOC’s official fixing in the previous session, the nearest it has been to the weak end of the 2 per cent trading band since 2015. The currency sold off along with other Chinese assets amid worries that President Xi Jinping’s push to tighten his control over the government will stifle the economy.

The renminbi is facing added pressure as the PBOC’s move to halt a string of steady currency fixings on Monday was seen as a sign that it is loosening its support. Tuesday’s fixing will be scrutinised to confirm bearish renminbi bets, especially after a Bloomberg survey last week forecast that the PBOC would ease its tight-ranged fixing after the Communist Party Congress.

“This morning’s PBOC’s fix will be critical to watch, to see if the PBOC is relaxing its grip,” said Mr Christopher Wong, a foreign exchange strategist at OCBC Bank.

The market expects the PBOC to let the renminbi weaken more in an orderly manner. BLOOMBERG, REUTERS

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