With fear and favour

4 July 2018 By Pete Sweeney Follow @petesweeneypro

A stronger dollar largely accounts for a recent 6 pct fall in the yuan, with the central bank managing the pace. Tumbling Chinese stocks can be weathered, and some defaults are healthy. Patience is not one of President Xi’s virtues, though, and panicked intervention is a risk.

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The yuan has lost about 6 percent of its value against the U.S. dollar since late March, giving up all its earlier strengthening for the year. The pace of decline accelerated when the People’s Bank of China decided to hold local interest rates steady after the U.S. Federal Reserve raised its benchmark rate on June 14.

The CSI300 index of the largest stocks trading in Shanghai and Shenzhen has fallen over 15 percent so far this year, making China the second-worst performing emerging market year-to-date behind Turkey in local currency terms.

The PBOC said on June 24 it would cut reserve requirements for banks on July 5, freeing up $108 billion in new liquidity, after signs of stress appeared in the domestic bond market.

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