China’s Yuan Gains on Speculation PBOC Intervened to Curb Drop

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China’s yuan rose on speculation the central bank intervened to support the currency after the International Monetary Fund said on Wednesday that it was delaying the expansion of its reserves basket.

The yuan closed 0.1 percent stronger at 6.3890 a dollar in Shanghai, according to China Foreign Exchange Trade System prices. It fell as much as 0.08 percent earlier. At least three major Chinese banks were seen selling dollars around midday, according to a trader.

“The PBOC is still intervening,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp in Singapore. “While that shouldn’t be a new normal for the PBOC, they do want to manage market expectations and ensure there is no panic.”

China devalued the yuan last week and shifted to a more market-oriented exchange rate, sending the currency into the deepest decline in two decades. Under the new system, PBOC intervention has partly replaced the daily reference rate’s role in guiding currency moves.

The yuan in Shanghai is allowed to trade as much as 2 percent on either side of the PBOC’s reference rate, which was strengthened 0.08 percent to 6.3915 a dollar Thursday.

The IMF’s executive board voted Aug. 11 to extend the existing Special Drawing Rights basket by nine months to Sept. 30, 2016, it said Wednesday. That followed an IMF staff report in July that recommended the extension to minimize disruption if the yuan is approved for inclusion at a review in November.

Offshore Yuan

In Hong Kong’s offshore market, the freely-traded yuan fell 0.08 percent to 6.4465 a dollar as of 4:51 p.m. local time, according to data compiled by Bloomberg.

“The IMF executive board vote is slightly negative for the yuan today as the inclusion will be delayed,” said Banny Lam, co-head of research at Agricultural Bank of China International Securities in Hong Kong. “That said, any major yuan depreciation is unlikely in the near term after such a big adjustment last week. It’s time for some stability.”

The IMF is sending a clear message that greater exchange-rate flexibility is needed for the yuan to win reserve-currency status, Michael Every, Hong Kong-based head of financial markets research, said Thursday.