The offshore yuan extended its decline to around 7.27 per dollar, hovering near two-week lows, as investor concerns deepened over the effectiveness of China’s stimulus measures in countering the impact of new U.S. tariffs.
Offshore yuan hovers at two-week low
Despite Beijing’s efforts to bolster the economy—including setting a 5% GDP growth target, raising the fiscal deficit to a three-decade high, and rolling out policies to stimulate consumption and domestic demand—growth remains sluggish, weighed down by weak consumer confidence and a struggling property sector.
However, markets found some relief after former President Donald Trump signaled a more selective approach to tariffs, easing fears of an all-out trade war. Still, uncertainty lingers as traders assess whether Beijing’s economic measures can provide sufficient support amid external pressures and structural challenges at home.
PBOC announced a shift in its approach
On the monetary policy front, the People's Bank of China (PBOC) announced a shift in its approach, stating that it would place less emphasis on the medium-term lending facility (MLF) rate and instead focus on the seven-day reverse repo rate as its key policy tool. The central bank also introduced a new bidding system for MLF loans, a move aimed at refining liquidity management but one that has raised questions about future borrowing costs.
In an effort to maintain liquidity in the financial system, the PBOC plans to issue CNY 450 billion in one-year MLF loans, signaling a continued commitment to economic support. Additionally, policymakers have hinted at potential rate cuts when deemed necessary, a stance that has kept the yuan under sustained pressure. Investors remain cautious, watching for further monetary easing measures and their potential impact on capital flows and exchange rate stability.
