This Thursday, the 4th, China’s central bank set its reference exchange rate for the yuan below what was predicted by the markets, in a sign that Beijing is seeking to halt the currency’s recovery against the dollar.
According to information released by the People’s Bank of China (PBOC, central bank) on its official website, the official exchange rate for today was set at 7.0733 yuan per dollar, 164 ‘pips’ (one hundredth of 1%, a measure used in exchange rate analyses) below the most widespread forecasts among investors and analysts.
The decision, highlights the Bloomberg agency, represents the biggest difference between market expectations and the rate finally set by the BPC since February 2022.
The exchange rate set by the BPC is fundamental for the quotation of the “onshore” rate — negotiated in national markets — of the yuan, as it can only deviate within a maximum daily range of 2%, both when it appreciates and when it depreciates.
Given the optimism that followed the trade truce between China and the United States, followed by the announcement of the eventual visit of US President Donald Trump to the Asian country next year, the yuan has been approaching the psychological barrier of 7 units per dollar, and its value in the markets is on track to reach the highest levels since 2020.
Part of the appreciation of the yuan in relation to the dollar is also due to fears, reflected in the US currency, regarding the budgetary policy of the United States, as well as forecasts of a reduction in interest rates by the Federal Reserve (Fed).
“The BPC has been giving priority to exchange rate stability, so it is not surprising (…) that they are slowing down the pace of increases. We do not expect the level of the 7 units [por dólar] be put to the test for the rest of the year, but will likely be surpassed at some point next year,” said Lynn Song, ING’s chief China economist, cited by Bloomberg.
In turn, Khoon Goh, from Australia; New Zealand Banking Group, notes that the PBOC seeks to “manage the rhythms” of yuan growth, “but not stop them.”
“Most likely, authorities want a smoother pace of appreciation for the currency, especially given the expected volatility in exchange rates,” he added.
At the beginning of the year, the Asian giant’s currency was close to falling to its lowest levels since 2007, due to fears of the impact of the trade war with the United States, and some analysts pointed out that Beijing would try not to revalue itself, in order to support the competitiveness of Chinese exports.