China’s yuan dips after rate cut, pulls most Asian currencies lower

China’s yuan dips after rate cut, pulls most Asian currencies lower

22 Aug    Finance News

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China’s yuan touched its weakest in

nearly two years on Monday, dragging down most emerging market

currencies, after the country’s central bank cut key lending

benchmarks, while investors also eyed Indonesia’s central bank

meeting this week.

The yuan depreciated 0.2%, its lowest since

late-September 2020. The People’s Bank of China (PBOC) cut its

benchmark lending rate and lowered mortgage reference by a

bigger margin to shore up its COVID-hit economy.

The PBOC’s latest move follows last week’s surprise cut on

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key lending facilities at a time when the U.S. Federal Reserve

is set on an aggressive monetary policy tightening path.

Alvin Tan, head of Asia FX strategy at RBC Capital Markets,

said there was more policy easing room in China, compared with

the euro zone or the United Kingdom, considering China’s

economic growth was decelerating and inflation was not as

problematic as elsewhere in the world.

However, weakening credit demand in China suggests that

monetary policy through interest rates and credit channels is

losing traction, he added.

“This in turn suggests greater reliance on exchange rate

depreciation to bolster the economy amidst the global economic

slowdown,” Tan said.

Equities in China rose 0.6% after the rate cut.

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Bank Indonesia (BI), one of the few major Asian central

banks that has not yet lifted interest rates from pandemic-era

levels, is expected to leave its policy rate unchanged at record

lows yet again on Tuesday, a Reuters poll found.

The rupiah, which has lost about 4.1% so far this

year, fell 0.3% and hit a two-week low, while stocks in Jakarta

dropped 1.3%.

However, Kunal Kundu, an economist at Societe Generale, said

he was expecting a 25 basis point hike on Tuesday, citing

pressure on the currency as trade deficit becomes unfavorable

on the back of easing commodity prices, and with current account

deficit eventually turning negative.

“A contractionary fiscal stance, weakening growth prospect,

BI exiting debt monetization scheme and inflation far from

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peaking calls for raising policy rates to support the currency

and maintaining an attractive bond yield,” he added.

Among other Southeast Asian currencies, South Korea’s won

slid 1% and hit a more than 13-year low, while

Thailand’s baht slipped 0.7%.

The dollar index, which measures the greenback

against six major peers, hit a five-week high and further

dragged most emerging currencies after more Fed officials

flagged the likelihood of further aggressive monetary

tightening.

U.S. Fed Chair Jerome Powell headlines a host of policy

makers at Jackson Hole later this week and markets are weighing

risks of a continued hawkish stance on policy.

The peso and the Singaporean dollar fell 0.3%

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and 0.2%, respectively, while the Philippine’s benchmark index

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declined 2.3% and Singapore’s equities added 0.5%.

Separately, Thailand’s economy is expected to grow by 3.0%

to 3.5% this year, helped by public investments and a pick-up in

the vital tourism sector, the finance minister said.

HIGHLIGHTS:

** Heavyweights Samsung Electronics and peer SK

Hynix drag South Korea’s benchmark index

** Indian rupee at fair value despite balance of payment

problems: JPMorgan analyst

The following table shows rates for Asian currencies against

the dollar at 0728 GMT.

COUNTRY FX RIC FX FX INDEX STOCKS STOCKS

DAILY YTD DAILY YTD %

% % %

Japan +0.07 -15. -0.47 0.01

90

China 3

India 4

Indonesia -0.34 -4.2 -1.25 7.62

7

Malaysia -0.20 -7.1 -0.91 -4.90

2

Philippines -0.34 -9.1 -2.32 -5.87

6

S.Korea 27

Singapore -0.20 -3.2 0.53 4.48

3

Taiwan 1

Thailand 1

(Reporting by Upasana Singh in Bengaluru; Editing by Anil

D’Silva)

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