China takes measures to cool the yuan rebound

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As China struggles with rising commodity prices and slowing economic growth, China is taking measures that have not been used since the global financial crisis to ease the yuan’s rebound, and analysts expect to take more actions.

The People’s Bank of China’s move to force banks to hold more foreign currencies shows that policymakers want to Strongest level The exchange rate against the U.S. dollar last week was three years.This signifies that the Trump administration has listed Beijing as Currency manipulator In 2019, the RMB depreciated to an important level of RMB 7 per US dollar.

According to the People’s Bank of China, the action announced by the central bank on Monday night will increase the statutory reserves of Chinese financial institutions from 5% to 7% of total foreign exchange deposits, “to strengthen foreign exchange liquidity management.”

Analysts said that this is the largest increase in history and the first increase since the global financial crisis. The strengthening of the renminbi has caused more headaches for Chinese policymakers who are already struggling to deal with the risks posed by soaring commodity prices and the high leverage of the entire economy.

In the past 12 months, the renminbi has appreciated by nearly 11% against the U.S. dollar. On Tuesday, the onshore renminbi exchange rate was almost unchanged, at 6.3696 yuan per dollar, but analysts said they may intervene more in the currency market.

“This move aims to reduce the rapid appreciation of the onshore renminbi [foreign currency] “Liquidity in the system,” said Becky Liu, China macro strategist at Standard Chartered Bank. The bank estimates that this increase will reduce the liquidity of China’s foreign exchange market by approximately US$20 billion.

This requirement will restrict the domestic supply of foreign currencies, make it more difficult to use U.S. dollars to buy renminbi within the country, and may ease the demand for renminbi.

“The actions of the People’s Bank of China highlight its position and hints against the rapid appreciation of the RMB. [at] Further measures,” said Ken Cheung, chief Asian foreign exchange strategist at Mizuho Bank.

However, some policymakers in China support a stronger renminbi.This month, an official of the People’s Bank of China wrote an editorial, which was subsequently deleted, believing that the central bank should allow the currency to appreciate in response Global commodity prices soar. A stronger renminbi may reduce the cost of importing overseas raw materials.

higher Commodity price It pushed up the factory prices of Chinese factories and raised concerns about inflation. The cabinet meeting chaired by Premier Li Keqiang last month stated that measures should be taken to prevent producer price inflation, which rose by 6.8% in April and transmitted to consumer price inflation, which is still low. Producer prices have been falling for most of 2020.

There are also signs that China’s strong economic recovery from Covid-19 is cooling off.On a quarterly basis, the economy Only 0.6% increaseAccording to the National Bureau of Statistics, the first three months of this year were far below expectations.

Although the renminbi is strong and China’s exports theoretically benefit from the weak renminbi, they have boomed in the past year. Exports in U.S. dollars in April increased by 32% year-on-year, reflecting China’s dominant position in global trade after its rapid recovery from the pandemic.

However, “broad renminbi strength may weaken the competitiveness of China’s export sector,” Zhang added.

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