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China's change to midpoint formula a pre-emptive move for a Fed hike: newspaper

Friday, June 2, 2017 - 11:14

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The adjustment to the mechanism China's central bank uses to set the daily yuan midpoint was a pre-emptive move to offset the effects from expectations of a US interest rate increase this month and the stresses of seasonal dollar demand, the Financial News said on Friday.

[SHANGHAI] The adjustment to the mechanism China's central bank uses to set the daily yuan midpoint was a pre-emptive move to offset the effects from expectations of a US interest rate increase this month and the stresses of seasonal dollar demand, the Financial News said on Friday.

The newspaper, owned by the People's Bank of China, said the risks from pressure wrought by "internal and external contradictions" would have been too much.

"Stabilising the foreign exchange risks would leave room for the deleveraging campaign," the newspaper said, adding that deleveraging and fending off risks in the country's financial system were among the government's main tasks this year.

The China Foreign Exchange Trade System (CFETS) trading platform, overseen by the central bank, said last Friday that a"counter-cyclical factor" would be introduced into the way it calculates the yuan's reference rate each day. allowing it to better reflect supply and demand.

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The newspaper said the change had already been implemented.

The yuan spot rate has surged around 0.7 per cent since last Friday to a near seven-month high against the US dollar, strengthening views the central bank was setting the Chinese currency on a firmer path.

In March, after the Fed raised US rates, the PBOC raised short-term interest rates in what economists said was a bid to stave off capital outflows and keep the yuan stable.

REUTERS

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