Still scope for yuan appreciation despite the PBOC weekend policy move
This was the weekend news from the People's Bank of China:
ANZ analysts do not see the yuan falling too far in response though:
- The authorities have not stood in the way of yuan strength, but this move could be seen as a sign that they want to slow the pace of appreciation.
- Our interpretation is that removing the reserve requirement is intended to encourage firms to hedge in order to manage currency risk. It also enhances the foreign exchange market structure by making it easier for foreign investors to hedge their onshore portfolio investments.
- We still see scope for further yuan appreciation, especially with China's strong growth momentum, wide yield differential and strong inflows in part due to index inclusion. But the authorities want to encourage more two-way flows, and removing the reserve requirement will help.
Offshore yuan has added to its losses since Monday: