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Chinese Yuan Mixed As PBoC Cuts Reserve Requirements to Boost Economy

January 2, 2020 at 18:07 by Andrew Moran

Yuan note reverseThe Chinese yuan is mixed on Thursday as the central bank announced that it is cutting amounts of deposits that commercial institutions are mandated to hold as reserves. This comes soon after new data found the nation’s manufacturing activity remained in expansionary territory, which is positive news for a nation that is trying to achieve better growth than what it has recorded over the last two years.

On Wednesday, the People’s Bank of China (PBoC) said that it will slash the reserve requirement ratio for all financial institutions by 0.5%, effective January 6. The decision will add close to $115 billion in liquidity into the banking system. The larger lenders will see their ratios dip from 13% to 12.5% and the smaller ones will drop from 11% to 10.5%.

Beijing is betting that this will push banks to lend more to cash-strapped small businesses and potentially reverse the weakness in recent years.

For the fifth consecutive month, the Caixin China general manufacturing purchasing managers’ index (PMI) expanded in December, but it did come in lower from the previous month. The manufacturing PMI clocked in 51.5 last month, down from 51.8 in November. New orders growth slumped to a three-month low, output expansion remained strong, employment was flat, and purchasing activity climbed again.

Earlier this week, the National Bureau of Statistics (NBS)’s manufacturing PMI came in at 50.2 last month, unchanged from November. The non-manufacturing PMI posted a reading of 53.5 in December, down from 54.4 in the previous month.

The Caixin services and composite PMI figures will come out on Sunday. Next week will be a big week on the data front as foreign exchange reserves, inflation, and trade figures are published.

The USD/CNY currency pair picked up 0.02% to 6.9643, from an opening of 6.9632, at 17:00 GMT on Thursday. The EUR/CNY tumbled 0.46% to 7.7795, from an opening of 7.8131.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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