China’s yuan firmed on Monday as state-owned banks sold dollars to keep the currency stable after the Chinese central bank sharply weakened its official fixing, two traders told Reuters.
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Chinese banks extended 948.7 billion yuan ($142.23 billion) in net new yuan loans in August, exceeding analysts’ expectations and more than double the previous month’s lending of 463.6 billion yuan. The central bank “is wary of the overheating property market and fast-rising mortgage loans”. The CNH Hong Kong Interbank Offered Rate benchmark (CNH Hibor), set by the city’s Treasury Markets Association (TMA), hit the highest level in seven months at 8.16167 percent for overnight contracts. The one-week rate rose 5.23 percentage points to 10.15 per cent, the highest since January.
The offshore yuan advanced 0.23 percent to 6.6754 a dollar as of 11:33 a.m.in Hong Kong, while the onshore yuan strengthened 0.13 percent.
The move also signals that the People’s Bank of China prefers using such flexible money market instruments to adjust the supply of funds and shows it isn’t in a rush to use more powerful easing weapons like cuts in interest rates or banks’ reserve requirements. “It’s one year after the yuan’s sharp depreciation and quite soon it will be included into the SDR basket, so there’s speculation that China’s central bank might intervene to stabilise it”.
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China’s central bank on Tuesday was to pump a total of 160 billion yuan into the markets to maintain holiday liquidity.
