Escalate yuan intervention: Chinese authorities to state-owned banks

Chinese authorities told state-owned banks to step up intervention in the currency market this week, in a push to prevent a surge in yuan volatility, according to people familiar with the matter.
 

Senior officials are also considering the use of tools such as cutting banks’ foreign-exchange reserve requirements to prevent a rapid depreciation in the currency, said the people. The request came as the yuan fell toward 7.35 per dollar, a level that top leadership has been paying close attention to, they added. 
 

Authorities were also checking if domestic companies helped accelerate yuan declines by conducting speculative trades against it, said the people, who requested not to be named as they are not authorised to discuss the matter.
 

A sense of gloom has descended on China’s markets this week, even though Beijing sought to bolster sentiment with a surprise interest-rate cut, a string of stronger-than-expected daily reference rates for the yuan and large injections of short-term cash to the financial system. Despite these measures, the onshore yuan is tumbling toward the weakest level since 2007 and a key index of shares in Hong Kong is close to a bear market.
 

China will resolutely prevent excessive adjustment in the yuan, the People’s Bank of China said in its monetary policy report. The foreign-exchange market is currently in line with fundamentals, it said. Chinese policymakers have the right tools, to maintain “orderly functioning of the foreign-exchange market,” the central bank said.