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China’s central bank will not allow sharp yuan declines and has asked major state-owned banks to reduce U.S. dollar purchases, people with direct knowledge of the matter said on Wednesday.
The directive from authorities comes as the yuan faces heavy downward pressure following massive U.S. tariffs on Chinese exports and retaliatory moves by Beijing.
The People’s Bank of China (PBOC) sent the window guidance, which is its informal style for managing policy around markets, to state banks this week, asking them to withhold U.S. dollar purchases for their proprietary accounts, three sources said.
Big banks were also told to step up checks when executing dollar purchase orders for their clients, one of them said, in a move markets interpret as a way for the central bank to curb speculative trades.
The country’s big state banks were seen selling dollars and buying yuan aggressively to slow the pace of yuan declines in the onshore spot market on Wednesday, two separate sources said.
China’s yuan has lost about 1.3% so far this month and was last at 7.35 per dollar on Wednesday, while its offshore counterpart hit a record low overnight.
Additionally, China’s central bank will not resort to yuan devaluation to soften the blow from tariffs on exports and the broad economy, three policy advisers and another banker familiar with the central bank’s thinking told Reuters.
“A sharp depreciation will not happen as that could hurt market confidence, but a modest depreciation will help exports,” said one of the policy advisers.
“We should also assist key enterprises through subsidies, tax rebates, or market diversification.”
Reuters
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