China directs its state banks to intensify yuan intervention

Chinese officials have directed state-owned banks to play a more active role in the currency market this week, aiming to prevent a surge in yuan volatility, as reported by Bloomberg. This move follows the yuan's decline to approximately 7.35 per dollar.

Sources from Bloomberg suggest that high-ranking Chinese authorities are considering the possibility of reducing foreign exchange reserve requirements for banks to mitigate currency depreciation. Additionally, they are investigating whether domestic companies contributed to the yuan's decline by trading against it.

Despite Beijing's attempts to boost market sentiment through measures like a surprise interest rate cut, a series of stronger-than-expected daily reference rates for the yuan, and substantial injections of short-term liquidity into the financial system, a sense of pessimism has enveloped China's markets this week.

Add WION as a Preferred Source

In spite of these measures, the onshore yuan is edging closer to its lowest point since 2007, while a prominent Hong Kong stock index is nearing the threshold of a bear market.

Moreover, the preferred foreign exchange control tool of the People's Bank of China (PBOC), known as the fixing, imposes a 2 percent daily limit on fluctuations in the onshore yuan's value. However, traders are growing increasingly impatient with China's persistently weak economic indicators.

Furthermore, in its monetary policy report, the People's Bank of China emphasized its commitment to avoiding excessive adjustments to the yuan. The report highlighted that the foreign exchange market currently aligns with underlying economic fundamentals.

Assuring the capability to ensure the "orderly functioning of the foreign exchange market," the central bank asserted that the Chinese government possesses the requisite tools and resources.

(Inputs from Bloomberg)

WATCH WION LIVE HERE