Yuan Strengthens as PBOC Raises Fixing, Reserves Slow Decline

Updated on
  • Investors becoming more positive on currency, analyst says
  • Non-PBOC institutions may be absorbing flow pressure: Goldman

The yuan strengthened after China’s central bank raised its fixing for a fourth day and data showed a less-than-estimated drop in the nation’s foreign-exchange reserves.

The currency stockpile shrank by $28.6 billion last month, the smallest decline since June, to $3.2 trillion, the People’s Bank of China said on Monday. That’s lower than the $40.9 billion decrease predicted in a Bloomberg survey of economists, and compares with December’s record drop of $108 billion as the monetary authority supported the yuan.

The yuan rose 0.19 percent to 6.5053 a dollar as of 5:07 p.m. in Shanghai, according to China Foreign Exchange Trade System prices. The offshore rate was little changed at 6.5089 in Hong Kong. The PBOC raised the currency’s fixing by 0.11 percent to 6.5041.

“Capital outflows have eased in the past month as investors have became more positive toward the yuan amid policy makers’ verbal support,” said Banny Lam, co-head of research at Agricultural Bank of China International Securities Ltd. in Hong Kong. “The market will become more optimistic about the currency as the authorities may announce new policies to shore up economic growth. I expect to see more capital inflows in March and April.”

Verbal Support

Chinese officials including PBOC Governor Zhou Xiaochuan have in the past few weeks repeatedly said that there’s no basis for continuous yuan depreciation. Deputy Governor Yi Gang said during the annual National People’s Congress that the currency will remain stable against a basket of exchange rates.

The foreign reserves data don’t necessarily give a comprehensive picture on the trend of demand for overseas currencies from companies and individuals, as non-PBOC financial institutions may use their balance sheets to absorb flow pressures and as valuation effects are uncertain, Goldman Sachs Group Inc. economists led by MK Tang wrote in a note. The central bank or other related entities may have accumulated forward positions that don’t affect the reserves immediately, they said.

Exports Slump

China’s export slump deepened in February, highlighting the challenge for policy makers seeking to keep growth humming at home without a boost from external trade.
Overseas shipments tumbled 25.4 percent in dollar terms from a year earlier, the customs administration said on Tuesday, compared with a 11.2 percent drop in January. Imports extended a streak of declines to 16 months, declining 13.8 percent, leaving a trade surplus of $32.6 billion.

The yield on China’s government bonds due January 2026 was little changed at 2.94 percent, National Interbank Funding Center prices show. The seven-day repurchase rate, a gauge of interbank funding availability, rose one basis point to 2.28 percent.

— With assistance by Tian Chen

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