Offshore Yuan Trims Decline After China's GDP Beats Estimates

  • Third-quarter expansion is still slowest since early 2009
  • PBOC to keep yuan stable before IMF SDR decision, analysts say

Looking at China’s Expanding Economy

The yuan traded in Hong Kong trimmed losses after China’s third-quarter economic growth beat estimates, suggesting stimulus measures are starting to take effect.

Gross domestic product increased 6.9 percent, beating the 6.8 percent median estimate in a Bloomberg survey, official figures showed Monday. That’s still the weakest expansion since the first quarter of 2009 and less than the full-year target of 7 percent. The PBOC has cut benchmark interest rates five times since November and lowered the amount of cash major lenders need to set aside as reserves three times this year.

The freely traded offshore yuan declined 0.15 percent to 6.3740 a dollar as of 4:45 p.m. in Hong Kong, according to data compiled by Bloomberg. It was as much as 0.24 percent weaker before the data was released. The onshore currency, which is restricted to moving a maximum 2 percent either side of a daily fixing, fell 0.11 percent to 6.3601 in Shanghai, according to China Foreign Exchange Trade System prices. The People’s Bank of China weakened its daily reference rate by 0.14 percent to 6.3527.

"Although the GDP data is better than expected, it’s still below the annual goal and indicates that China’s fundamentals are quite weak," said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. "The PBOC will probably keep the yuan stable before the International Monetary Fund’s review of its basket of reserve currencies, and continue to ease monetary policy to spur growth."

China is planning several measures to push the case for the yuan’s inclusion in the IMF’s Special Drawing Rights, PBOC Deputy Governor Yi Gang said this month. These include opening the domestic bond and currency markets to foreign central banks and issuing three-month Treasury bills weekly to establish “representative” yuan interest and exchange rates. The Washington-based organization is due to make a decision on the yuan’s inclusion next month.

‘Not Easy’

It’s "not easy" achieving economic growth of around 7 percent and any reading that’s a little above or below that is acceptable, Premier Li Keqiang said in a statement published Friday night on the State Council’s website. 

"The depreciation pressures on the yuan are weakening as economic fundamentals picked up due to previous easing measures and on speculation the currency will remain steady as China bolsters its global use," said Eddie Cheung, a strategist at Standard Chartered Plc in Hong Kong. "The PBOC will cut the reserve-requirement ratio by 100 basis points this year and policy rates by another 25 basis points to revive growth."

— With assistance by Tian Chen

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