Chinese authorities adopted more measures to boost investor confidence that saw markets close higher on Tuesday, though they remained highly volatile.
The People’s Bank of China reportedly intervened in the currency market aggressively that led the rates of the onshore yuan and the Hong Kong-based offshore yuan, known as the CNH, hit parity.
The central bank apparently instructed the state-owned banks to buy yuan offshore massively. The spread between the onshore and offshore yuan rates was more than 2 percent last week that fueled arbitrage between the two rates.
The PBoC actions saw the overnight yuan borrowing rates in Hong Kong, which is the Hong Kong Interbank Offering Rate (HIBOR), surge a record 66.80 percent on Tuesday.
Elsewhere, Chinese government officials were also trying to boost the currency by verbal intervention. The PBoC Chief Economist Ma Jun said Tuesday that the bank aims to stabilize the yuan and to tie the currency to a basket of currencies. He also noted that the yuan-dollar volatility will continue.
Han Jun, deputy director of the office of the Central Leading Group on Financial and Economic Affairs, said on Monday that it was “ridiculous” to bet on a large depreciation in the yuan.
Authorities are trying to fight speculation that the yuan is a one-way depreciation bet, analysts said. They also want to make the yuan exchange rate more market-determined ahead of the currency’s inclusion into the IMF’s reserve-currency or SDR basket later this year.
The material has been provided by InstaForex Company – www.instaforex.com