Yuan eases after c.bank's surprise bank reserve cut
SHANGHAI, April 18 (Reuters) - China's yuan eased against the U.S. dollar on Wednesday after the central bank surprised markets by cutting the amount of reserves banks must keep on reserve, raising some concerns over the health of the economy. The People's Bank of China (PBOC) announced late on Tuesday it would cut bank reserve requirements in a move that helps free up lending for small firms but falls short of broad monetary easing. Reserve requirement ratios (RRRs) -- currently 17 percent for large institutions and 15 percent for smaller banks -- will be cut by 100 basis points (bps) from April 25. Traders said the sudden RRR cut weighed on the yuan in morning trade as the amount was larger than expected and had come earlier than most had predicted. Prior to market opening on Wednesday, the PBOC set the midpoint rate at 6.2817 per dollar, 46 pips or 0.07 percent weaker than the previous fix of 6.2771. In the spot market, the onshore yuan opened at 6.2835 per dollar, eased to a low of 6.2905 at one point in morning trade. As of midday, the onshore spot yuan was changing hands at 6.2869, 14 pips weaker than the previous late session close and 0.08 percent softer than the midpoint. Monetary policy easing is traditionally negative news for the yuan, albeit the central bank said it would maintain its prudent and neutral momentary policy stance. A trader at a foreign bank in Shanghai said it was "not impossible" that the RRR cut might reignite capital outflows and trigger depreciation expectations on the Chinese currency. But he interpreted the PBOC's move as a bid to inject funds to counter supply pressures caused by corporate tax payments. Domestic companies and financial institutions have to make quarterly tax and other regulatory payments in mid-April, which are expected to suck funds out of the interbank market. Some market watchers expect the central bank to ease the reserve requirement further to enable banks to repay outstanding medium-term lending facility (MLF) loans over the rest of this year. In global markets, the dollar was largely stable against its major trading partners. The global dollar index, a gauge that measures the unit's strength to six other currencies stood at 89.495 as of midday after gaining 0.1 percent overnight. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.78, weaker than the previous day's 97.85. The offshore yuan was trading 0.05 percent firmer than the onshore spot at 6.2835 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 6.3765, 1.49 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate. The yuan market at 0420 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.2817 6.2771 -0.07% Spot yuan 6.2869 6.2855 -0.02% Divergence from 0.08% midpoint* Spot change YTD 3.50% Spot change since 2005 31.65% revaluation Key indexes: Item Current Previous Change Thomson 97.78 97.85 -0.1 Reuters/HKEX CNH index Dollar index 89.495 89.516 0.0 *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2 percent from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.2835 0.05% * Offshore 6.3765 -1.49% non-deliverable forwards ** *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 Winni Zhou and John Ruwitch; Editing by Jacqueline Wong )
