Yuan Gains on Optimism Leaders to Show Support at Annual Meeting

Why Is China Waiting to Devalue Yuan?
  • Watching for new foreign-exchange reforms, strategist says
  • Country has sufficient tools to ensure growth: state media

The yuan headed for the longest run of gains in six weeks on optimism China’s leaders will signal support for the economy and the currency at an annual gathering starting Saturday.

QuickTake The People’s Currency

Premier Li Keqiang, who will present a work report to the National People’s Congress, will likely stress the nation’s goal of keeping the exchange rate stable against a basket of currencies, said Frank Zhang, Shanghai-based head of foreign-exchange trading at China Merchants Bank. Li will probably confirm monetary policy has changed to a slight easing bias, according to Bloomberg Intelligence economists Tom Orlik and Fielding Chen.

The yuan rose 0.11 percent to 6.5436 a dollar as of 10:46 a.m. in Shanghai, according to China Foreign Exchange Trade System prices. That extends its gains to 0.2 percent in three days. The offshore exchange rate climbed 0.03 percent to 6.5447 in Hong Kong. The People’s Bank of China strengthened its daily reference rate by 0.12 percent, the most in two weeks.

“What we’re seeing is a relief rally as there have been no major shocks,” said Andy Ji, a Singapore-based foreign-exchange strategist at Commonwealth Bank of Australia. “U.S. rate hike expectations have eased, putting less pressure on the PBOC. We will be watching to see if they come up with any new reforms during the NPC.”

‘Sufficient Tools’

The country has sufficient policy tools to ensure medium-to-high-speed economic growth, the state-run China Securities Journal wrote in a front-page editorial. This follows a PBOC decision to ease the reserve-requirement ratio for banks, increasing the supply of cash in the banking system. Chinese officials have said there is no intention or need to devalue the yuan, U.S. Treasury Secretary Jacob J. Lew said this week.

Markets largely ignored Moody’s Investors Service decision Wednesday to reduce its credit-rating outlook on China to negative from stable. While it cited factors including rising government debt and declining foreign-exchange reserves, Moody’s affirmed the nation’s long-term credit rating of Aa3, the fourth-highest investment grade.

The PBOC, which swamped the financial system with cash before January’s Lunar New Year holiday, pulled a net 370 billion yuan ($57 billion) in open-market operations on Thursday. This takes this week’s withdrawals to 500 billion yuan so far, the most in three years.

Repo Rate

The one-day repurchase rate, a gauge of interbank funding availability, dropped one basis point to 1.93 percent, according to a weighted average from the National Interbank Funding Center. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose one basis point to 2.31 percent.

“The withdrawal will not tighten liquidity because the PBOC reduced the reserve ratio on Monday and funds are pretty ample in the financial system,” said Banny Lam, co-head of research at Agricultural Bank of China International Securities Ltd. in Hong Kong.

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