Yuan Falls From 20-Year High as PBOC Cuts Fixing Most in a Month

China’s yuan fell the most in more than two months, retreating from a 20-year high, after the central bank lowered the currency’s reference rate and as data showed bank lending slowed in December.

The People’s Bank of China cut the yuan’s daily fixing by 0.12 percent, the biggest reduction since Dec. 19, to 6.1005 per dollar after setting it at new highs for the last two days. The nation’s foreign-exchange reserves rose to a record $3.82 trillion as of Dec. 31 from $3.66 trillion at the end of September, according to PBOC data released today. New yuan loans were 482.5 billion yuan ($79.8 billion), compared with 624.6 billion yuan in November.

The yuan declined 0.08 percent, the most since Nov. 1, to 6.0460 per dollar in Shanghai, snapping a three-day gain, according to China Foreign Exchange Trade System prices. It reached 6.0406 yesterday, the strongest since the government unified the official and market exchange rates at the end of 1993. Today’s fixing was 0.97 percent weaker than yesterday’s closing price, near the 1 percent trading limit.

“The PBOC set the fixing weaker today, surprising the market which had been anticipating another strong fix,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd.

China is looking to reduce intervention in the foreign-exchange market, widen the yuan’s trading band and increase the currency’s flexibility, Caixin online magazine reported yesterday, citing Wang Yu, deputy director-general of the PBOC’s research bureau.

The offshore yuan fell 0.03 percent to 6.0189 per dollar in Hong Kong, data compiled by Bloomberg show. Twelve-month non-deliverable forwards dropped 0.08 percent to 6.1015, a 0.9 percent discount to the onshore rate.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, declined five basis points, or 0.05 percentage point, to 1.16 percent.

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