The Chinese yuan is trending sideways against the US dollar on Friday as financial markets begin to weigh Omicron variant concerns and monetary tightening worldwide. The yuan, which will record a decent gain against the greenback this year, could be under pressure as Beijing unleashes additional support mechanisms and tries to curtail the currency’s growth heading into 2022.
Speaking at an internal meeting, People’s Bank of China (PBoC) Governor Yi Gang assured policymakers that the institution could sustain both reasonable and ample liquidity amid growth in money supply and credit.
Yi’s remarks come after the central bank maintain the rate on $78.5 billion worth of one-year medium-term lending facility (MLF) loans for the 20th consecutive month at 2.95%. The central bank was allowed to offset approximately $100 billion worth of MLF loans, which matured on Wednesday, because of its earlier move to lower banks’ reserve requirement ratio (RRR).
A growing number of market analysts think that the PBoC will move to cut the lending benchmark Loan Prime Rate (LPR) on Monday.
“The larger-than-expected injection confirms the PBOC’s vow of ample liquidity into next year,” said Xing Zhaopeng, senior China strategist at ANZ.
“The unmoved rate indicates the prudent tone of monetary policy. However, in the counter-cyclical setting, the authorities will be open to a rate cut if necessary. We believe the PBOC will be in a wait-and-see mode going forward.”
Overall, there are escalating concerns that the Chinese economy could be slowing down.
Earlier this week, the National Bureau of Statistics (NBS) reported that retail sales advanced 3.9% year-over-year in November, falling short of estimates of 4.6%.
Industrial production rose at an annualized rate of 3.8% in November, up from 3.6% in the previous month. Growth in housing prices eased, while year-to-date fixed asset investment also eased to 5.2%.
The USD/CNY currency pair rose 0.11% to 6.3755, from an opening of 6.3683, at 13:22 GMT on Friday. The EUR/CNY dipped 0.07% to 7.2097, from an opening of 7.2169.