MNI EXCLUSIVE: No Need For PBOC Yuan Special Action: Advisors

     BEIJING(MNI) - The People's Bank of China has made contingency plans for a

steep yuan sell-off caused by the coronavirus, but there is no sign so far that

it will need to be enacted, policy advisors told MNI.

     USDCNY surged passed 7 to the dollar for first time since Dec. 27 on Monday

as market concerns regarding the virus escalated and the PBOC cut reverse repo

rates. The onshore yuan closed at 7.0257 at 16:30pm, falling 1.38%, against the

U.S. currency, despite the PBOC's having set its daily fixing at 6.9249 in the

morning.

     The fall was expected and allowed the onshore yuan to track losses in the

offshore CNH, which had continued to trade during the week-long Chinese New Year

holiday, Guan Tao, former Director General of Balance of Payments at the State

Administration of Foreign Exchange, told MNI.

     The authorities have plans to deal with extreme market conditions, but

there is no need to activate them now, Guan said.

     --WEAK YUAN MAY ANNOY US

     Zhang Bin, head of global macroeconomic research at Institute of World

Economics and Politics at the Chinese Academy of Social Sciences, said the day's

onshore depreciation was proportionate considering the economic impact of the

virus. So long as market liquidity functions normally, there is no need for the

PBOC to step in, he said, agreeing that authorities should nonetheless prepare

for the worst.

     Any excessive depreciation in the yuan could irritate the U.S., which has

just signed a trade deal with China, noted Zhang Ming, senior fellow at the

Institute of World Economic and Politics under the Chinese Academy of Social

Sciences. It could also erode market confidence and spark capital outflows, he

said.

     The yuan could fluctuate in a range of 6.9 to 7.4 during 2020, and should

mainly remain stronger than 7.2 to the dollar, assuming that official efforts to

rein in the spread of the virus have been successful by the end of March, Zhang

Ming said.

     Tuesday's yuan fixing will be crucial to determining the PBOC's stance, a

forex trader in Hong Kong told MNI. If there is no big fluctuation in the

international forex market overnight, the fixing should come in at about 7.02

against the dollar or at least higher than 7.0. A fixing at a lower rate to the

dollar, indicating a stronger yuan, could prompt investors to turn cautious, he

said.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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