China Sets Weaker-Than-Expected Yuan Fix, Boosts Cash Injection

(Bloomberg) -- China’s central bank set the reference rate for the yuan at a weaker-than-expected level as the currency’s surge threatens to derail growth in the world’s second-largest economy. It also boosted short-term liquidity.

The People’s Bank of China set its daily fixing at 6.4069 per dollar, weaker than the average estimate of 6.4042 in a Bloomberg survey of analysts and traders. The move signals Beijing’s discomfort with a stronger exchange rate to maintain the competitiveness of the nation’s exports after the currency rallied by the most since January on Tuesday. 

In the money markets, the PBOC boosted the injection of short-term cash to 100 billion yuan ($15.6 billion), after adding 10 billion yuan per day in the past nine sessions. The central bank cited an increase in tax payments and government bond issuance for the cash infusion. The benchmark loan rate was kept unchanged for an 18th month.

“The net injection sends a clear signal that there is no change in the monetary policy tone and liquidity will not tighten,” said Zhou Hao, senior economist at Commerzbank AG. Also, “it could curb a rapid appreciation of the yuan.”

The onshore yuan dropped 0.2% to 6.3933. The yuan led gains among Asian peers on Tuesday. China’s 10-year bond yield fell two basis points to 2.99% after the liquidity injection. 

China has increasingly become an out-lier in the world as it keeps cash supply loose amid mixed economic signals. That comes as global central banks including the Federal Reserve and Bank of England weigh tightening monetary policy due to intensifying inflationary pressures. The policy divergence is expected to further weigh on the yuan.

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