The People’s Bank of China (PBOC), the central bank, pumped 120 billion yuan (18 billion U.S. dollars) into the money market via open market operations on Tuesday.
Advertisement
“It is unfair to single out China as a currency manipulator in an era where quantitative easing is turning many currencies into tools with which to express and implement government policy”, he adds.
“Short-end money rates have been excessively low in the last three months, and the situation is coming to an end with the overnight rate heading toward 2.5 percent“, said Shi Lei, head of fixed-income research in Beijing at Ping An Securities Co., a unit of China’s second-biggest insurer.
The move has strengthened the dollar value, which has negatively impacted major world currencies including the Indian rupee. The yield on U.S. 10-year Treasuries was 1 basis point higher at 2.16 percent. The deputy governor said that the yuan is close to market levels after two days of sharp declines. He regarded the currency devaluation indicated by China as valiant step in its move to a more market-determined exchange rate.
Investors have also grown more concerned that Beijing may begin to withdraw its unprecedented support for share prices. China’s inter-bank market needs a lot of liquidity this week in part because 90 billion yuan of reverse repo will mature.
Since the beginning of this year, the rupee has lost 3.8%, while foreign institutional investors have bought $6.99 billion from local equity markets and $6.34 billion from bond markets.
Plenty of reasons. The surprise devaluation suggests that something is spooking the Chinese government.
The injections together with the falling currency (dollars are bought) means China’s financial system, is severely strapped for dollars. Signs of trouble are accumulating.
A detailed breakdown of the activity survey showed conditions were deteriorating by nearly every measure, with factory output sinking to a near four-year low, domestic and export orders declining at a faster rate than in July and companies laying off more workers.
The panel also urged Malaysian exporters to embrace the usage of yuan in trades to save costs and boost the efficiency of transactions. On Wednesday, Vietnam allowed its currency to weaken in response to China’s move. In the meantime Chinese firms have increased borrowings in U.S. dollars during the timeframe to make up for the shortfall.
The yuan fell against the dollar despite China’s central bank setting the trading range slightly higher, as investors feared last week’s shock devaluations would prove the precursor to further cuts. The Fed has kept the rate at zero since December 2008. For one thing, the yuan has been very strong in the round: since last summer it has climbed by 20% against the euro and the yen; in real trade-weighted terms, it is up by 17% since early 2014.
Advertisement
Finally, the Chinese devaluation complicates the Fed’s decision to raise the short-term rate it controls later this year, being quite confident about the US recovery.
