Yuan Discount to Fixing Narrows on Bets China to Add Stimulus

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The yuan’s discount to the central bank’s reference rate shrank to the narrowest in five weeks on bets China will take more measures to stimulate the economy.

Manufacturing contracted for a third month in May, according to a gauge issued by HSBC Holdings Plc and Markit Economics Monday. A separate official Purchasing Managers’ Index came in at 50.2, less than the 50.3 predicted in a Bloomberg survey. The People’s Bank of China offered at least 1 trillion yuan ($161 billion) in loans taken against collateral to China Development Bank, the National Business Daily reported Tuesday, citing a trader it didn’t identify.

“The government will roll out more easing measures to expedite China’s economic recovery in the second half,” said Liu Xuezhi, a Shanghai-based macro-economy analyst at Bank of Communications Co. “The central bank will also stabilize the yuan to boost its global use and curb capital outflows.”

The gap between the onshore yuan and the PBOC’s daily fixing was 1.24 percent, the smallest since April 24 and within the 2 percent daily limit. The yuan advanced 0.02 percent to close at 6.1984 a dollar in Shanghai, China Foreign Exchange Trade System prices show, after the central bank lowered its fixing by 0.03 percent to 6.1225.

In Hong Kong’s offshore market, the currency rose 0.06 percent to 6.2014 a dollar as of 5:12 p.m. local time, according to data compiled by Bloomberg. The yuan’s one-month implied volatility, a measure of exchange-rate swings used to price options, fell to 1.06 percent, compared with a one-year average of 1.88 percent.

— With assistance by Tian Chen

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