Yuan declines sharply against dollar after PBOC cut interest rates

(MENAFN) The Chinese yuan began trading on Monday with a marked decline against the U.S. dollar, a reaction to the People’s bank of China’s (PBOC) recent decision to reduce initial interest rates. The benchmark rate for the yuan was set at 7.1335 per dollar, a decrease of 20 pips from the previous Friday’s closing rate of 7.1355 yuan per dollar. This adjustment comes as part of the central bank’s ongoing efforts to manage monetary policy and economic conditions.

According to a news agency, the yuan is permitted to fluctuate by up to 2 percent from the PBOC’s reference rate each trading day in the spot foreign exchange market. The indicative exchange rate of the yuan against the dollar is determined based on the purchase prices submitted by major financial institutions before the commencement of daily interbank market transactions.

In addition to the changes in the yuan’s trading value, the PBOC announced a reduction in key interest rates. The interest rate for one-year loans has been cut by 10 basis points, from 3.45 percent to 3.35 percent. Similarly, the rate on five-year loans, which many banks use to set mortgage rates, has been lowered by 10 basis points, from 3.95 percent to 3.85 percent. These new rates took effect today.

The central bank also reduced the interest rate on the seven-day reverse repo from 1.8 percent to 1.7 percent. To support liquidity in the market, the PBOC injected 58.2 billion yuan (approximately USD8.16 billion) through the new interest rate reverse repo mechanism. These measures reflect the bank’s strategy to influence economic activity and stabilize the currency amidst fluctuating global financial conditions.