The Chinese yuan tumbled against the U.S. dollar on Monday as investor sentiment weakened further amid resurgence in domestic COVID-19 cases and rapid tightening by the U.S. Federal Reserve, experts said. Monday.
They called for better containment of COVID-19 as soon as possible and stronger policy support to stabilize the Chinese economy, which will help boost market confidence and keep yuan depreciation pressure low. manageable.
The onshore yuan fell to 6.56 against the US dollar on Monday afternoon, the first time in about a year and weakens more than 700 basis points from Friday’s close.
Since the start of this month, the onshore yuan had depreciated about 3.5% against the greenback as of Monday afternoon.
China’s stock market also fell on Monday as the benchmark Shanghai Composite Index fell 5.13% to close at 2,928.51 points, the lowest level in nearly two years.
The People’s Bank of China, the country’s central bank, announced late Monday that it will cut the required foreign exchange reserve ratio by 1 percentage point to 8% on May 15, a move that experts say will help ease the pressure to depreciate the yuan.
Wang Youxin, a senior researcher at the Bank of China, said recent market jitters were driven by a resurgence in domestic COVID-19 cases that have hurt China’s economic outlook and the accelerated pace of Fed tightening that has hit the market. strengthened the dollar.
“Another major factor is volatile investor sentiment which has amplified market swings,” Wang said. “As sentiment recovers as the economic situation improves on the back of increased policy support, the yuan should gain stability.”
The main policy option to improve investor sentiment could be to achieve better COVID-19 containment as soon as possible, he said, which will normalize supply chain activity and consumer spending. while bringing into full play the effects of macro policy support.
In its latest effort to support the economy, the PBOC cut the reserve requirement ratio by 0.25 percentage points on Monday, freeing up 530 billion yuan ($80.67 billion) in long-term loanable funds.
The State Council, China’s cabinet, also issued a guideline on Monday to boost consumption, proposing measures such as opening more duty-free shops, encouraging the financial system to cut interest rates and easing restrictions. restrictions on vehicle purchases.
Going forward, it will become necessary for China to strengthen macroprudential management to avoid excessive capital outflows if the yuan experiences a sharp depreciation, said Zhang Liqing, director of the University’s Center for International Financial Studies. center of finance and economy.
Zhang said the yuan may continue to feel depreciation pressure this year, which could boost profits for Chinese exporters and help boost export growth.
But on the other hand, a weakening yuan could inflate import costs, worsen imported inflation pressure and reduce room for monetary easing, said Zhang, who is also chief economist of PwC China.
Shao Yu, chief economist at Shanghai-based Orient Securities, said he expected yuan depreciation pressure to remain manageable given the relative stability of China’s economic fundamentals and the resilience exports.