China’s central bank has mounted a stronger defence for the yuan and the domestic foreign exchange market, as the country braces for the return of Donald Trump who is expected to bring greater headwinds to trade and the exchange rate.
Advertisement
The People’s Bank of China and the State Administration of Foreign Exchange announced jointly on Monday an increase in the macroprudential adjustment parameter for the cross-border financing of enterprises and financial institutions, from 1.5 to 1.75 – a move previously taken to prevent the yuan-dollar exchange rate from worsening.
Cross-border financing involves providing funding for business activities that occur outside a country’s borders, and the adjustment parameter determines the upper limit of such financing allowed.
Experts said the move, which comes ahead of Trump’s inauguration next week, means businesses can borrow more foreign debt, and the action is among the precautions Beijing is taking as the onshore and offshore yuan has depreciated quickly against the US dollar.
“This move can go some way in easing the pressure of depreciation and increasing the amount of overseas financing for enterprises. If more US dollars flow in as a result, it will certainly help stabilise the yuan,” said Zhu Tian, an economics professor with the China Europe International Business School in Shanghai.
Advertisement
But Zhu said the boosting effect can be limited.