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MNI: PBOC Aims To Slow, Not Stop, Yuan Weakening-Advisors

(MNI) London

A lower level for the yuan would be in line with fundamentals as China's economy softens, advisors in Beijing say.

True

The modest scale of Monday’s cut in Chinese foreign exchange reserve requirements after the yuan’s biggest weekly fall against the dollar since 2015 indicates the People’s Bank of China may be increasingly tolerant of a weaker exchange rate, though it will prevent sell-offs from turning into a one-way trade and has plenty of tools to slow depreciation if necessary, policy advisors and FX traders told MNI.

A lower level for the yuan would be in line with softening fundamentals in a country grappling with a serious Covid outbreak, which has now spread to parts of Beijing after prompting lockdowns in economically key cities including Shanghai, and as the trade surplus narrows, said one advisor, adding that this would also be in line with the dollar’s broad strengthening. (See MNI: Yuan To Weaken As Exports Soften-Advisors) The PBOC is unlikely to defend any particular level but the range between 6.6-6.7 to the dollar will be crucial over the rest of the year, and a breach of 6.7 could trigger further sharp depreciation, he said.

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The modest scale of Monday’s cut in Chinese foreign exchange reserve requirements after the yuan’s biggest weekly fall against the dollar since 2015 indicates the People’s Bank of China may be increasingly tolerant of a weaker exchange rate, though it will prevent sell-offs from turning into a one-way trade and has plenty of tools to slow depreciation if necessary, policy advisors and FX traders told MNI.

A lower level for the yuan would be in line with softening fundamentals in a country grappling with a serious Covid outbreak, which has now spread to parts of Beijing after prompting lockdowns in economically key cities including Shanghai, and as the trade surplus narrows, said one advisor, adding that this would also be in line with the dollar’s broad strengthening. (See MNI: Yuan To Weaken As Exports Soften-Advisors) The PBOC is unlikely to defend any particular level but the range between 6.6-6.7 to the dollar will be crucial over the rest of the year, and a breach of 6.7 could trigger further sharp depreciation, he said.

Keep reading...Show less