SHANGHAI: China’s yuan held steady against the US dollar on Thursday, as stocks bounced after the country’s central bank said it will cut banks’ reserve requirement ratio (RRR), a move expected to boost investor sentiment and shore up a shaky economic recovery.
The weakness in China’s stock market has been dragging on yuan sentiment lately and the RRR cut has somewhat boosted investors’ risk appetite towards Chinese assets, market participants said.
China’s blue-chip CSI 300 Index is down more than 20% in a year and is still hovering near a 5-year low, weighed down by an economy struggling to make a post-pandemic rebound.
The CSI300 gained 1.3% by midday on Thursday.
The People’s Bank of China (PBOC) will cut the reserve requirement ratio (RRR) for all banks by 50 basis points (bps) from Feb. 5, PBOC governor Pan Gongsheng said on Wednesday.
The central bank sees the US Fed’s dovish pivot as providing the opportunity for more proactive fiscal and monetary policies to stabilise the domestic economy, manage financial risks, keep the yuan stable and enhance the appeal of yuan-denominated assets to foreign investors, Philip Wee, senior FX strategist at DBS said in a note.
“We do not see a lasting impact on the yuan but the recent slew of stimulus and rescue packages considered suggest that the government could be desperate to ramp up supportive growth measures,” Maybank analysts said in a note.
Prior to the market’s opening, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1044 per US dollar, firmest level since Jan 9.
The spot yuan opened at 7.1607 per dollar and was changing hands at 7.1590 at midday, 10 pips weaker than the previous late session close.
The global dollar index rose to 103.319 from the previous close of 103.236.
The offshore yuan was trading almost on par with the onshore spot at 7.1588 per dollar.