MNI BRIEF: PBOC Should Act To Soothe FX Sentiment-Ex-Official

The People’s Bank of China should act to stabilise FX market expectations of a weaker yuan against a rallying dollar, Sheng Songcheng, a former director of the PBOC’s statistics department said on Saturday at an economic forum.

The central bank should reverse sentiment betting on continuous yuan depreciation, if necessary, through measures, including reintroduction of the counter-cyclical factor into the PBOC’s daily fixing formula, further reduction of the FX deposit reserve requirement ratio, or increase issue of central bank bills in the offshore market, he suggested. He noted volatility of the yuan exchange rate would weigh on the stability of the whole economy and financial markets, See: MNI: PBOC Aims To Slow, Not Stop, Yuan Weakening-Advisors.

He attributed the sharp depreciation of the yuan in the past month to gains in the dollar index, and economic disruptions from Covid-19, softening exports. He predicted Q2 GDP may print at about 2.1% y/y, and 3.5% growth in the first half of the year.