China’s yuan firms, property support moves brighten outlook

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HONG KONG — China’s yuan firmed against

the greenback on Friday on investor optimism that recent policy

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support measures extended to the troubled property sector will

bolster an economic recovery this year.

China’s central bank and the banking and insurance regulator

said on Thursday they have established a dynamic adjustment

mechanism on mortgage rates for first-time home buyers in a bid

to further support the property sector.

The floor on mortgage rates can be lowered or abolished for

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first-time home buyers in cities where the selling prices of new

homes have been falling.

The latest move adds to a slew of measures announced since

November as the government moves to extend a lifeline to the

sector after many developers defaulted on their debt

obligations.

“The market is looking past the waves of COVID-19 cases and

focusing on how China’s growth could pick up this year. The

central bank could be very forceful in its monetary measures to

support growth and definitely is taking steps to reduce lending

costs,” said Khoon Goh, head of Asia research at ANZ.

The spot yuan, which hit a four-month high

reached earlier this week, opened at 6.8801 per dollar and was

changing hands at 6.8577 at midday, 0.35% or 243 pips stronger

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than the previous late session close and -0.49% away from the

midpoint.

The People’s Bank of China set the midpoint rate

at 6.8912 per U.S. dollar prior to the market open, firmer than

the previous fix 6.8926. The spot rate is currently allowed to

trade with a range 2% above or below the official fixing on any

given day.

Standard Chartered said it expects China’s GDP growth to

rise to over 5% for 2023, and that the central bank will again

cut the reserve requirement ratio, or the amount of cash that

banks must hold as reserves, by 25 basis points in the first

half to free up more funds for lending.

The World Bank forecasts economic growth slowed to just 2.7%

in 2022, weighed down by repeated COVID lockdowns which

disrupted production and dampened demand. But the government

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abruptly began dismantling its tough anti-COVID measures in

early December.

“The economic recovery will be supported by a rebound in

domestic consumption following its exit from zero-COVID,

(and)stabilization of the real estate sector on policy support,”

StanChart analysts including Becky Liu and Edward Pan wrote in a

report published on Thursday.

The global dollar index fell to 105.024 from the

previous close of 105.042.

The offshore yuan was trading 0.03% weaker than the

onshore spot at 6.86 per dollar.

Offshore one-year non-deliverable forwards contracts

(NDFs), considered the best available proxy for

forward-looking market expectations of the yuan’s value, traded

at 6.7011, 2.84% away from the midpoint.

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One-year NDFs are settled against the midpoint, not the spot

rate.

The yuan market at 3:15AM GMT:

ONSHORE SPOT:

Item Current Previous Change

PBOC midpoint

0.02%

6.8912 6.8926

Spot yuan

6.882 0.35%

6.8577

Divergence from

midpoint*

-0.49%

Spot change YTD

0.62%

Spot change since 2005

revaluation 20.69%

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan

* 6.86 -0.03%

Offshore

non-deliverable 2.84%

forwards 6.7011

**

*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.

.

(Reporting by Georgina Lee; Editing by Kim Coghill)