Yuan Falls to Six-Week Low on Concern Cash Crunch to Slow Growth

China’s yuan fell to a six-week low as the central bank weakened the currency’s fixing amid concern a cash squeeze will slow lending and economic growth.

The People’s Bank of China set the reference rate 0.03 percent lower at 6.1797 per dollar today, reducing it for the seventh time in eight days. The monetary authority said this week it has provided some liquidity to financial institutions to stabilize money-market rates that surged to record highs last week, and also called on commercial banks to improve their liquidity management.

“Growth concerns are definitely there given the rate spike in the past couple of weeks,” said Andy Ji, a foreign-exchange strategist in Singapore at Commonwealth Bank of Australia. (CBA)

The yuan fell 0.04 percent to 6.1494 per dollar as of 11:34 a.m. in Shanghai, according to China Foreign Exchange Trade System prices. The onshore spot rate, which is allowed to diverge from the fixing by a maximum 1 percent, reached 6.1508 earlier, the weakest level since May 15. The yuan has lost 0.24 percent this month, paring its advance this quarter to 1 percent.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repurchase rate, reached an all-time high of 5.06 percent on June 20, data compiled by Bloomberg show. It fell six basis points today to 3.85 percent, still above the one-year average of 3.18 percent.

The seven-day repo rate, a gauge of interbank funding availability, fell 55 basis points to 6.74 percent, according to a weighted average compiled by the National Interbank Funding Center. It touched a record high of 12.45 percent on June 20 and has a one-year average of 3.6 percent.

Spillover Effect

“We think that the liquidity crisis will spill over to the broader financial sector and the real economy,” Jian Chang, an economist at Barclays Plc in Hong Kong, wrote in a report today. “While interbank interest rates have peaked and are falling, rates will likely remain elevated for some time.”

The pain of the credit crunch is needed to pave the way for a more sustainable economy, the official Xinhua News Agency said in an unsigned commentary yesterday.

Twelve-month non-deliverable forwards rose 0.06 percent to 6.3075 per dollar in Hong Kong, according to data compiled by Bloomberg. The contracts are at a 2.5 percent discount to the onshore spot rate. The offshore yuan traded in Hong Kong was little changed at 6.1478.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, dropped two basis points, or 0.02 percentage point, to 1.89 percent, data compiled by Bloomberg show.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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