CHINA TOPIX

03/29/2024 07:38:26 am

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China Takes Steps to Control Yuan Value Slide, Outlook Bleak

Chinese Yuan

(Photo : Getty Images) It is believed that the sudden increase in overnight holding charges for yuan in Hong Kong were due to government intervention.

China has instituted various measures to contain the fall of its currency value. However, market experts believe that the slide is likely to continue despite these actions. The slowdown in economy is likely to further exacerbate the depreciation in value.

The currency has shown higher volatility during the recent past. This is mainly due to capital outflow curbs placed by the People's Bank of China. Further, increase in the overnight cost of holding yuan has also tipped the scale adversely for the currency.

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Allan von Mehren, a strategist at Danske Bank A/S, said, "The yuan will fall to 7.26 per dollar by the end of September." This denotes over a 5 percent drop from the current value of the currency. Mehren further added that the yuan is still being pushed down by the fundamental pressure.

It is believed that the sudden increase in overnight holding charges for yuan in Hong Kong were due to government intervention. However, the measure failed to control long-term players in the field. At the very same time, it made the costs prohibitive for short-term speculators, providing some cushion to the currency.

The People's Bank of China has not explicitly confirmed taking any such measure. The step helped in boosting the value of yuan against the dollar by nearly 2 percent, its highest weekly gain.

The central bank is looking to contain the value of the currency by controlling capital outflow as well. Apart from this, it also seeks to stabilize the level of its foreign currency reserves. 

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