China's yuan barely moved against the dollar on Thursday after the Chinese central bank announced its biggest monetary easing in a decade. The central bank on Wednesday slashed benchmark one-year lending and deposit rates by 1.08 percentage point, and said it would cut banks' reserve ratios by between 1 and 2 percentage points on December 5.
The easing was much larger, and came earlier, than the markets had expected, causing speculation that the authorities might believe China's economic slowdown was more serious than previously thought. A Chinese government think tank forecast the economy would grow only 8 percent in the fourth quarter from a year earlier, more slowly than most economists' expectations so far for the quarter and the lowest growth since at least the fourth quarter of 2005.
But dealers said they expected the central bank to continue using its mid-point system and indirect intervention if needed to keep the yuan steady in coming weeks in the tiny range of roughly 6.82-6.85 that it has maintained for the past several months.
This expectation was reinforced by comments by Zhang Ping, chairman of the National Development and Reform Commission, who told a news conference on Thursday that China would stick to its present currency policy. The central bank has publicly said it wants to avoid the large capital outflows suffered by some other Asian countries in recent months, and this is believed to be a major motive for keeping the yuan steady.
"Trading in the onshore market will continue to be guided mainly by the central bank for the foreseeable future," said a dealer at a major Chinese commercial bank in Shenzhen.
Spot yuan closed at 6.8280 versus the dollar against Wednesday's finish of 6.8287, after moving in a range of just 6.8272-6.8308. The central bank set the yuan's mid-point mildly lower at 6.8292 against Wednesday's 6.8272.
Offshore one-year dollar/yuan non-deliverable forwards edged up to 6.9950 bid late on Thursday from Wednesday's close of 6.9850. Their latest level implied yuan depreciation of 2.37 percent from the day's spot mid-point over the next 12 months, against 2.26 percent depreciation implied at Wednesday's close.