SHANGHAI/BEIJING (Reuters) – The People’s Bank of China has asked some domestic banks to scale back their outbound investments through the Bond Connect scheme, two sources with direct knowledge of the matter said. did. Chinese yuan.
The People’s Bank of China (PBOC) window guidance appears to be aimed at curbing yuan inflows into Hong Kong and limiting the supply of yuan in offshore markets, the sources said.
The move is the latest in a string of recent efforts to stem the yuan’s depreciation, at a time when China’s financial markets have suffered losses and large outflows.
Ken Chan, chief Asian currency strategist at Mizuho Bank, said the guidance “could reduce the outflow of funds from the mainland through bond markets.” “Also, offshore yuan yields could rise to support the yuan.”
A two-year Southbound move to the Bond Connect scheme will allow mainland institutional investors to buy bonds traded in Hong Kong.
“Limiting the outflow of yuan to offshore markets could lead to a tightening of offshore yuan liquidity to raise funding costs,” one of the sources said, adding that the PBOC’s move could lead to a tightening of yuan liquidity. sees it as an attack on foreign yuan bears.
Both sources spoke on condition of anonymity because they were not authorized to speak to the media. The People’s Bank of China declined to comment on the content of the window guidance.
The directive is the latest in a series of steps China has taken to protect its currency, which has been hit by economic stagnation and capital outflows. The currency has fallen about 5% against the dollar since the beginning of the year, hitting a 10-month low of 7.3498 to the dollar last week. After that, Friday’s trading price firmed at 7.2865.
Several measures have been taken aimed at increasing the cost of offshore RMB shorts.
Other sources told Reuters earlier this week that China’s state-owned banks took steps this week to rake cash from the market and squeeze the yuan. They began to reduce lending to their peers and were later seen aggressively trading buy and sell swaps in the futures market to absorb the offshore renminbi.
The People’s Bank of China’s increased sale of yuan banknotes in Hong Kong this week also helped tighten liquidity in offshore markets to stabilize the yuan, said a former central bank official.
The cost of keeping the yuan short, measured by short-term swaps, rose to 5.55%, the level of two years ago.
The People’s Bank of China (PBOC) is also urging banks to stop subscribing to certificates of deposit (NCDs) issued by offshore banks, another new measure aimed at curbing the amount of renminbi in the Hong Kong market. be.
This is reported by the Beijing-Shanghai Newsroom. Written by Vidya Ranganathan Edited by Shri Navaratnam
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