By BLOOMBERG
The offshore yuan erased early losses after China’s central bank kept the currency’s daily fixing stable for the second day in a row, calming markets after sparking turmoil last week.
The People’s Bank of China (PBOC) on Friday ended an eight-day run of reductions to the reference rate that sent shockwaves through financial markets, triggered trading halts in onshore equity markets for two days last week. The Standard & Poor’s Index fell 1.1% on Friday, capping its worst-ever start to a year.
The offshore yuan rose 0.04% to 6.6803 a dollar as of 9:43 am in Hong Kong, after declining as much as 0.37%. It sank as low as 6.7618 last week, within 0.4% of a record 6.7850 seen in September 2010. The monetary authority set the reference rate, which restricts onshore moves to a maximum 2 percent on either side, at 6.5626 a dollar, little changed from 6.5636 on Friday and 6.5646 the previous day.
“The bias is to keep the fixing stable in order to keep stocks stable after what happened to the S&P on Friday,” said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “China doesn’t want to add more to the concerns and volatility that we’ve seen last week.”
IMF concern
The yuan’s spot rate in Shanghai rose 0.20% to 6.5806 a dollar. The offshore currency’s 1.7% decline last week pushed its discount to the Shanghai price to a record 2.9%, prompting the International Monetary Fund to say that it will discuss the widening spread with the authorities. The PBOC has weakened its daily fixing by 2.5% since winning entry into the IMF’s reserves basket on Nov 30.
The monetary authority will seek to keep the yuan’s exchange rates “basically stable” at reasonable and equilibrium levels and work to further promote the internationalization of the currency, it said in a statement on its website Friday. The nation’s consumer price index rose 1.6% in December, below the government’s target of around 3% for 2015, show data released by the National Bureau of Statistics on Saturday.
“Market sentiment remains very fragile, so the PBOC intended to stabilize the foreign-exchange market with today’s fixing,” said Ken Cheung, a Hong Kong-based strategist at Mizuho Bank Ltd. “The Chinese authorities will avoid fighting a two- front war in currency and equities.”
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