The People’s Bank of China set the yuan reference value in a stronger position than market expectations, establishing a strong line of defense in the currency.
The People’s Bank of China decided to defend the yuan with a step beyond the expectations of market players.
The bank set the reference value for the yuan just below 7.15 against the dollar. Thus, the reference value in question was determined to be 680 basis points stronger than the average expectations in the Bloomberg survey.
After the bank’s decision, the offshore yuan also increased by close to 1%. The bank’s reference value is capped at 2 percent bidirectional movement in the onshore currency.
The bank also kept benchmark loan interest rates (LPR) constant in line with market expectations.
The People’s Bank of China maintained the interest rate as 3.55 percent for 1-year maturity and 4.20 percent for 5-year maturity in the LPR, which is compiled from the loan interest rates offered by 18 major banks to their best customers.
Economists expect the bank to take moderate steps to ease monetary policy for the remainder of the year. These steps include a potential cut in policy interest rates and lower reserve requirements.
In another decision, the People’s Bank of China took a step beyond the door to foreign capital flows by regulating the rules that would allow companies to borrow more from abroad.