In a rare attempt to bolster China's yuan, a self-regulatory body overseen by the country's central bank has told major state-owned banks to lower dollar deposit interest rates, four people with direct knowledge of the matter said.
This could encourage Chinese firms, especially exporters, to settle foreign exchange receipts in yuan , which has weakened to six-month lows against the dollar. The buoyant U.S. currency and the Federal Reserve's interest rate hikes have prompted many Chinese companies to hoard dollar receipts.
The change came into effect on Tuesday, they said, adding the new rates the big banks can offer is set to be lowered by as much as 100 basis points from the previous ceiling of 5.3%. The yuan has lost more than 6% against the dollar since highs hit in January, when China reopened its borders, making it one of the worst performing Asian currencies this year. It last traded at 7.1199 per dollar.last month it would resolutely curb large fluctuations in the exchange rate and study the strengthening of self-regulation of dollar deposits.
"Subsequent carry trade will have to bear higher FX risks, and the move could be considered as an official counter-cyclical measure," a yuan trader said of the move.
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