10 December 2018
The central bank may be setting the stage for a broader trading band for the renminbi. Photo: Bloomberg
The central bank may be setting the stage for a broader trading band for the renminbi. Photo: Bloomberg

The Big Picture: VOLATILE RMB

The Chinese currency declined the most since 2010 on speculation the central bank wants to send a warning to speculators through a renminbi depreciation before it further widens the currency’s trading band.

The yuan fell 0.46 percent to 6.1266 per dollar as of 1 pm in Shanghai on Tuesday, sliding for a sixth day, according to the China Foreign Exchange Trade System. It was the weakest level in the past four months and the first time it exceeded the 6.1 level in three months.

The spot rate was within 0.13 percent of the central bank’s reference rate, which was set at 6.1184 on Tuesday. The renminbi is allowed to rise or fall 1 percent from the daily reference rate. On average the currency has traded 0.77 percent stronger than the fixing rate this year. The yuan’s accumulated rate of appreciation is nearly 1 percent since the beginning of the year.

The People’s Bank of China set the renminbi’s daily midpoint against the US dollar at 6.1184 on Tuesday, 5 pips stronger than the 6.1189 fixing on Monday, according to the China Foreign Exchange Trade System. The redback’s daily midpoint against the US dollar has fallen 0.35 percent this year, central bank data shows.

The yuan has risen 36 percent and strengthened in all but three quarters since its peg to the US dollar ended in July 2005. UBS AG said the recent depreciation may suggest the People’s Bank of China is shifting away from allowing a steady pace of gains and this may lead to a reversal of “hot money” inflows.

Market observers said the renminbi is likely to remain volatile in the coming few months before the central bank doubles the yuan’s trading band to 2 percent. They said they remain optimistic the Chinese currency will strengthen by 1 to 2 percent against the US dollar by the end of this year as the possibility of a large-scale capital outflow recedes.

SAFE may put cross-border capital tax on agenda

Chinese banks amassed US$73.30 billion in foreign exchange surplus in January, the highest amount since the state started releasing the monthly data early last year, the China Securities Journal reported Wednesday, citing the State Administration of Foreign Exchange. The data suggests an increasing inflow of cross-border funds, the report said. The regulator also said a financial transaction tax, which many emerging economies use to manage cross-border capital, could be considered, the report said.

New requirements on risk control set for brokerages

New risk control rules for brokerages will come into effect on March 1, the Shanghai Securities News reported Tuesday, citing the Securities Association of China. Under the new rules, each brokerage must appoint a chief risk officer and perform a stress test at least once every six months to ensure its liquidity coverage ratio, or assets to liquidity needs for the next 30 days, is at least 100 percent. The professional association will conduct on-site checks but brokerages are asked to take action themselves, the report said.




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