SHANGHAI, Aug 17 (Reuters) – China’s big state-owned banks were seen busy selling US dollars to buy yuan in the onshore and offshore spot foreign exchange markets this week, according to circumstances. people familiar with the matter said. RMB depreciation.
State-owned banks sometimes trade on their own behalf or to fulfill customer orders, but they often act at the behest of the central bank when the yuan is under pressure, as it is now.
“State-owned banks’ dollar selling has become the new normal to slow the yuan’s depreciation,” said a Shanghai-based trader.
Offshore branches of state-owned banks also saw dollar selling during trading hours in London and New York this week, two sources said on Thursday.
Such dollar selling could limit the depreciation of the offshore renminbi and prevent it from deviating too far from the onshore renminbi.
The yuan has depreciated about 2.4% against the dollar since this month and is down 6% since the beginning of the year. As of 0442 GMT (4:42 pm Japan time), the onshore yuan is trading at 7.3145 yuan to the dollar, while the offshore yuan is trading at 7.3400 yuan to the dollar.
The recent steep yuan depreciation is a result of the widening yield gap between China and the US, and growing investor concerns over slowing economic growth in China and rising default risks in the real estate and shadow banking sectors. is.
Investors were disappointed by the government’s slow introduction of stimulus measures to boost growth. Meanwhile, the People’s Bank of China (PBOC) has loosened monetary policy to support the economy, but the yuan has come under further pressure at the cost of lower interest rates.
Yield spreads between China and the U.S. have widened to a 16-year high this week, but investors are poised for more policy after the People’s Bank of China (PBOC) surprise rate cuts this week, even if the yuan is under more pressure. It showed the observation that it relaxes.
Chinese officials have tried to slow the yuan’s depreciation in recent weeks, with the People’s Bank of China insisting on a stronger-than-expected yuan and state banks repeatedly selling the dollar, market sources said. .
A similar tactic was seen in September 2022, when the People’s Bank of China (PBOC) asked large state-owned banks to prepare to sell yuan to the dollar in offshore markets in an attempt to stem the yuan’s depreciation.
In July, the People’s Bank of China adjusted parameters to allow businesses to borrow more abroad to support the yuan by bringing in foreign currency that can be converted domestically. However, the high interest rates imposed on foreign loans continue to hamper foreign borrowing, undermining the effectiveness of policy adjustments.
Traders say the state-owned bank’s offer to cut yuan lending in the offshore Hong Kong market is helping as liquidity crunch in Hong Kong helped contain the yuan’s depreciation this week. be done.
Overnight renminbi borrowing costs in Hong Kong surged to their highest level since April 2022 on Wednesday as the CNH Hong Kong Interbank Offered Rate Index (CNH HIBOR) rose across the board.
A banker said the liquidity squeeze was less dramatic as aggressively purging yuan liquidity from the market could hurt bond market sentiment. .
Reported by Shanghai Newsroom.Editing: Jacqueline Wong & Simon Cameron Moore
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