China sets renminbi fix at strongest bias on record to lift currency

HONG KONG – China extended its currency defence by setting its reference rate for the renminbi with the strongest bias on record.

The People’s Bank of China set the fix at 6.9116 per US dollar, 598 pips stronger than the average estimate in a Bloomberg survey of analysts and traders. The strong bias exceeded the previous record of 454 pips seen last Wednesday and comes on top of a reduction in foreign currency reserve requirements for banks, which was also aimed at supporting the currency.

The central bank’s renewed pushback comes as the offshore renminbi once again weakened towards 7, its lowest since 2020. That is because US inflation data fuelled bets on jumbo hikes by the Federal Reserve, which would set China’s monetary policy further apart from the US and drive outflows.

“There appears to be more of a near-term bias to continue to use the fixing to anchor spot,” said Mr Eddie Cheung, senior emerging market strategist at Credit Agricole Corporate and Investment Bank. “The policy intention right now is to ensure market stability, he said, adding that this may still not be enough to turn around dollar-renminbi.

The renewed dollar strength stemming from hawkish Fed bets also dragged other Asian currencies, such as the South Korean won and the yen, lower while also prompting further verbal intervention from Japan.

The renminbi is also under pressure as Covid-19-led lockdowns in major cities and turmoil in the nation’s property sector weigh on the economy. Traders are watching if the central bank will add liquidity in the banking system this week as medium-term loans come due, after an unexpected rate cut in August spurred the currency’s decline.

China Securities Journal reported citing analysts that there is no basis for long-term renminbi depreciation as China’s economy stabilises, the trade surplus stays high and the authorities guide expectations.

The onshore renminbi was little changed at 6.9712 per dollar while the offshore unit edged up 0.1 per cent to 6.9783 as of 9.42am in Hong Kong. BLOOMBERG