China’s Yuan Rebounds as Drop Seen Excessive, PBOC Raises Fixing

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The yuan rebounded from the biggest loss in a year on bets the drop was excessive and as the central bank raised the currency’s fixing to a three-month high.

The onshore yuan slumped 0.41 percent Monday on speculation the central bank will boost the supply of funds by buying local government debt and cutting interest rates. The People’s Bank of China is discussing unconventional policies to rebuild its balance sheet and revive the economy, Market News International reported Monday, citing people it didn’t identify.

The yuan gained 0.24 percent, the most since March 19, to close at 6.2057 a dollar in Shanghai, China Foreign Exchange Trade System prices show. In Hong Kong’s offshore market, the currency climbed 0.1 percent to 6.2093 as of 4:43 p.m. local time, according to data compiled by Bloomberg.

“The yuan advanced as yesterday’s drop was so sharp that the currency now looks like a good bargain,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. “China doesn’t have to roll out massive quantitative easing in the near-term, as long as its economic slowdown is under control. So the yuan will remain stable.”

The PBOC may cut its benchmark one-year lending rate by 25 basis points to 5.1 percent by the end of June, according to the median estimate of economists in a Bloomberg survey. It reduced the proportion of deposits that major lenders need to set aside as reserves by 1 percentage point to 18.5 percent effective April 20.

Provincial authorities estimated they had some 16 trillion yuan ($2.6 trillion) in liabilities in a review earlier this year, the China News Service said April 25, citing a Ministry of Finance official it didn’t name. That’s a 47 percent jump from 10.9 trillion yuan in June 2013.

The PBOC raised the yuan’s daily reference rate by 0.02 percent to 6.1209 a dollar, the strongest level since Jan. 16. The gap between the onshore yuan and the fixing was 1.39 percent, within the 2 percent limit.

— With assistance by Tian Chen

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