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Chinese Yuan Slides Breaches 7 As PBoC Injects More Stimulus

February 20, 2020 at 14:02 by Andrew Moran

Hundred US dollar bill vs. Hundred Chinese yuan billThe Chinese yuan has tumbled past the crucial 7 mark against the US dollar again as the central bank injected additional stimulus to contain the economic fallout from the coronavirus. This is the second time in less than a year that the yuan has fallen to this level, and many experts anticipate further weakening of the currency until Covid-19 has been subsided.

On Thursday, the People’s Bank of China (PBoC) reduced the loan prime rate for February from 4.8% to 4.5%. The market had forecast that the PBoC would lower it to 4.65%. The central bank also added another $14.2 billion of liquidity through seven-day reverse repurchasing agreements. Earlier this week, Beijing reduced the one-year medium-term lending facility loans from 4.15% to 4.05%.

These are all measures to support the financial system and cushion stocks from bleeding red ink. Officials believe these are necessary tools as they encourage banks to tolerate bad loans and continue to lend out to borrowers with an emphasis on areas greatly impacted by the virus outbreak.

All indicators point out that the PBoC will impose additional stimulus measures.

Asian stocks posted modest gains on Thursday after it was reported that the Chinese government is considering cash injections and mergers to bail out the airline industry. Another report suggested that Beijing is expected to acquire deeply indebted Hainan Airline.

It will be quiet on the data front until the end of the month when manufacturing and non-manufacturing purchasing managers’ indexes (PMIs) come out.

Meanwhile, the Wuhan coronavirus is still prevalent throughout China and around the world. The death toll has risen to 2,130 and total confirmed cases topped 75,700. Authorities are celebrating that the number of new cases has stabilized, suggesting that their efforts are working out for the country.

The USD/CNY currency pair rose 0.37% to 7.0244, from an opening of 6.9983, at 12:55 GMT on Thursday. The EUR/CNY climbed 0.38% to 7.5867, from an opening of 7.5578.

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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