The yuan traded in Hong Kong’s offshore market dropped 0.02 per cent even as the PBOC strengthened its reference rate by 0.4 per cent.
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The US dollar is weaker by 0.2% at 94.75 after the Fed held rates – as was expected.
Globally, the dollar was on the defensive after the Federal Reserve lowered its economic growth forecasts and scaled back its rate hike projections on Wednesday, cementing expectations that it will have to skip tightening next month.
The central bank unleashed a flood of money on the Chinese financial system earlier in the year to ensure the economy hits the Chinese leadership’s minimum growth target of 6.5%, but then modulated the flow as speculative bubbles began inflating in investments as varied as housing and egg futures. Risk-averse investors continue to rely on the U.S. to park their capital as the probability of Britain’s exit from the European Union is high.Brexit concerns have overshadowed Fed’s dovish tone and will likely drive dollar up, thereby pressuring yuan.
Analysts said the fall is caused by a renewed crackdown on shadow banking, which resulted in a sharp contraction in banks’ bill financing.
“The overall credit figure is not bad, but the social financing is way too low, which will put more pressure on economic growth in the future”, Liu Dongliang, a senior analyst at China Merchants Bank in Shenzhen, said in a research note.
The Chinese yuan closed down by 0.2% at 6.5813 per dollar after MSCI decided not to include China’s A shares in its Emerging Markets Index. This would support the yuan’s relative strength against other currencies. Earlier this month, Goldman Sachs also turned bearish on yuan owing to the devaluation pressure.
Economists surveyed beforehand by Bloomberg and Reuters had predicted commercial lending of 元750 billion ($113.9 billion). The central bank injected another 80 billion yuan on Thursday by auctioning three-month treasury deposits.
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The seven-day repo rate, a gauge of interbank funding availability, rose two basis points to 2.29 per cent, according to National Interbank Funding Centre prices. The US bank kept the benchmark rates unchanged as widely anticipated.
