The People’s Bank of China is weighing a series of measures to prevent big swings in the exchange rate of the renminbi, the Hong Kong Economic Journal reported Friday.
The Chinese central bank is considering directly intervening in the foreign exchange market and tightening its scrutiny of transactions that might be fraudulent.
More control over capital flows might also be put in place, especially over foreign capital that tries to speculate or arbitrage the disparity between the onshore and offshore renminbi, Bloomberg reported, citing unnamed sources.
Meanwhile, the central bank’s mouthpiece, China Money, an online portal run by the China Foreign Exchange Trading System and National Interbank Funding Center, said in a commentary that foreign exchange transactions driven by demands other than those derived from the actual economy were polarizing the renminbi’s exchange rate.
The recent decline in the renminbi’s exchange rate has prompted certain banks to lower their forecasts for the strength of the currency, Standard Chartered Bank (Hong Kong) Ltd. changing its estimate to 6.65 from 6.55 against the US dollar for the first quarter, and to 6.61 from 6.42 for the end of this year.
Chan Tak-cheung, head of currencies and interest rates trading at Bank of East Asia Ltd. (00023.HK) in Hong Kong, said that apart from apparent intervention by the PBoC, a large amount of closing transactions also helped narrow the gap between the offshore and onshore renminbi rates Thursday from 1,500 basis points in the morning to 970 points in the evening.
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