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2018年9月20日 (木)

BC adjusts yuan fix factors to kee market stable

  Central bank ersuaded to resume ‘counter-cyclical’ measures

  China's central bank said on Friday that it was adjusting its methodology for fixing the yuan's daily midoint in order to kee the currency market stable, amid broad dollar strength and ongoing trade tensions between Washington and Beijing.

  The yuan surged more than 400 is to trade at 6.8412 against the US dollar in late night trading after the eole's Bank of China (BC) announced the change on Friday.

  But the currency has still dereciated by about 5 ercent since the start of the year, artly reflecting concerns over debt levels in the economy, and gloomier rosects for economic growth and exorts due to China's escalating trade disute with the US.

  The BC said the "ro-cyclical market sentiment" driving the yuan's slide had ersuaded it to resume use of a "counter-cyclical factor" when it fixes the yuan's daily mid-oint.

  "Affected by the recent strong dollar index and trade frictions, there have been some ro-cyclical activities in the foreign exchange market," the BC said.

  The central bank said the revival of the "counter-cyclical factor" would hel the yuan remain basically stable at a reasonable and balanced level.

  Analysts say the BC's aim would be to sto a herd mentality from develoing in the currency market, which would run the risk of accelerated caital outflows. Several analysts susected it was a recautionary move by the BC to bolster the yuan while the trade row with Washington drags on.

  "There was no breakthrough in the China-US trade talks, and the negotiations between the two sides are exected to become a rotracted war. The central bank has to take out measures ste by ste to stabilize the exchange rate," said Ken Cheung, senior Asian FX strategist at Miuzho Bank in Hong Kong.

  "Whether the yuan will start to areciate is still largely deendent on the rogress of the trade war."

  The BC has rolled out a slew of counter-cyclical measures over the ast few weeks.

  It reinstated a reserve requirement ratio of 20 ercent in early August for financial institutions settling foreign exchange forward dollar sales to clients, effectively raising the cost for investors shorting the yuan.

  Regulators again on Thursday barred banks from using some interbank accounts to deosit or lend yuan offshore through free trade zone schemes, two sources with direct knowledge of the matter told Reuters.

  The changes tightened yuan liquidity offshore and made it more exensive to short the currency.

  "The yuan is likely to face some uward correction in the near term to about 6.8 er dollar level," said a trader at a foreign bank.

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