The Yuan’s trading in mainland China reached a 6-month low against the greenback on May 29, with the exchange rate dropping to 7.2488 CNY per USD. This is due to the People’s Bank of China (PBOC) lowering its reference exchange rate to 7.1106 CNY per USD. The PBOC allows Yuan trading within a margin of plus or minus 2% from the reference rate, and outside mainland China, it also fell to 7.2667 CNY per USD, marking its lowest point since April 29.
Analysts attribute the downward pressure on the yuan to a stronger USD resulting from differing monetary policies between the PBOC and US Federal Reserve (Fed). While the Fed has maintained high interest rates for over two decades with doubts about whether they will start cutting rates by year’s end, this has led to the USD remaining at a high price, putting pressure on the yuan.
The PBOC faces pressure to find a balance between depreciating the yuan for growth without causing market panic or capital outflows. They have kept local currency prices stable for most of the year but are now under increasing strain due to accelerating capital outflows and decelerating growth. The PBOC is focusing on slowing down the pace of yuan weakening rather than defending a specific price level due to long-term high USD pegging.
In response to economic challenges, the PBOC has made some moves such as eliminating interest rate floors on mortgage loans and establishing financing programs for local governments buying abandoned houses. Analysts predict that further policy loosening will occur this year, including reducing required reserve ratios for banks.
Asia’s currencies are not immune from downward trends against the USD. Other currencies like Japanese Yen, Thai baht, and Indonesian rupiah are also experiencing similar declines compared to the USD due to broader economic challenges and uncertainties in
