The People’s Bank of China stated that it has many tools against the panic that may occur in the country’s currency, the yuan.
In an article published in the Bank’s official publication, Financial News, it was determined that the depreciation in the yuan was due to short-term factors caused by the economic recovery not meeting expectations.
In the article, foreign exchange risk-reserve ratio, banks’ foreign exchange deposit-reserve ratio and the counter-cyclical factor used in determining the reference rate of the People’s Bank of China are listed as tools that can be adjusted against the exchange rate decline.
Mizuho Bank Currency Strategist Ken Cheung said, “This article aims to boost yuan investor confidence. It also sends the message that the depreciation of the yuan will be kept under control.”
This morning, after the article was published, the People’s Bank of China set the dollar/yuan reference rate of 7.2098, below the average expectation. According to Cheung, this morning’s reference rate shows that the People’s Bank of China is on alert for possible depreciation of the yuan.