China takes strategic steps to protect faltering yuan By Reuters

SHANGHAI (Reuters) – China stepped up its policy measures on Monday to protect the weak yuan by relaxing rules to allow more onshore borrowing and sending verbal warnings as the Chinese currency spirals. – around 16 months against the strong dollar.

The yuan is facing renewed devaluation pressures, weighed down by a strong triple core, falling Chinese output and rising trade tensions with other economies.

The People’s Bank of China (PBOC) announced on Monday that lending limits will be raised to allow businesses to borrow more from abroad.

The ratio under its macro-prudential tests (MPA) – which determines the size of a company that can lend based on its assets – will be raised to 1.75 from 1.5, immediately.

The move was to “enhance the prudential management of cross-border funds, continue to increase cross-border funding sources for businesses and financial institutions, and guide them to improve the accountability of their assets,” said the PBOC. statement issued jointly with the foreign exchange regulator.

Separately, China’s Foreign Exchange Committee plans to keep the yuan’s exchange rate stable at reasonable and balanced levels, the central bank said in a statement.

The committee is a forum under the auspices of the central bank and the foreign exchange regulator.

The committee also said that financial regulators will increase the stability of the FX market and strengthen market regulation. They will also correct pro-cyclical market activities, deal with behavior that disrupts market orders and prevent excessive exchange risks.

And in Hong Kong, PBOC Governor Pan Gongsheng told the Asia Financial Forum on the same day that “China has the confidence, the conditions and the ability to maintain the stable performance of the foreign exchange market in country.”

China will keep the yuan’s exchange rate stable at a reasonable and balanced level,” Pan reiterated.

The moves are “sending a signal to stabilize the yuan,” said Ken Cheung, chief Asia FX strategist. Mizuho (NYSE:) Bank.

“But the real impact of capital flows and exchange rates is relatively limited, due to the low cost of domestic funds.”

Cheung said the authorities will continue to use mainly to adjust the daily situation to stabilize the currency and guide market expectations.

China traded at 7.3315 per dollar as of 0247 GMT on Monday, not far from a 16-month low of 7.3328 on Friday. It has lost more than 3% against the dollar since US President-elect Donald Trump won the election in November.

The central bank is keeping its official central bank guidance on the firm side at a key level of 7.2 and stronger than market estimates since mid-November. Traders and analysts widely interpret this as a sign of growing frustration over the recent depreciation of the yuan.

The PBOC said last week that it will sell 60 billion yuan of six-month bonds in Hong Kong on Jan. 15.

Selling these yuan bonds will raise capital in the market to reduce speculative bets against the yuan.