SHANGHAI: China’s yuan held steady against the dollar on Wednesday, as trade tensions with the United States simmered even as Beijing outlined a steady economic growth target and measured monetary easing for this year.
China kept its economic growth target for this year unchanged at roughly 5% while committing more fiscal resources than last year and lowering its inflation target, as the National People’s Congress (NPC), China’s rubber-stamp parliament, began its annual meeting on Wednesday.
A government document prepared for the NPC annual meeting showed China aims to keep the yuan stable, and ease monetary policy slowly.
Traders and analysts said the growth target against a backdrop of Sino-US tensions and weak sentiment meant monetary settings, particularly the reserve ratio (RRR), will be reduced.
That could pressure the yuan further, given its relatively low yields. “Repeating the ‘around 5%’ growth target despite a more challenging external environment is a show of confidence as well as an implication of stronger policy support for domestic demand this year,” said Lynn Song, chief economist for Greater China at ING.
“We think there is quite a high likelihood of policy rollout in the coming month or two. It will likely start with monetary policy as the implementation is easier and faster – we expect a rate cut and RRR cut in March or April.”
China last cut its policy rate in September and benchmark loan prime rates (LPRs) in October.
The yuan has fallen 2.5% against the dollar since Trump’s election win, hurt by rising trade tariffs and disputes with the United States.
Beijing responded immediately on Tuesday as US President Donald Trump’s doubling of duties on Chinese goods to 20% took effect, with additional tariffs of its own on certain US imports from March 10 and a series of new export restrictions for designated US entities.
China’s yuan inches higher on PBOC support as US tariffs loom
By 0217 GMT, the onshore yuan was 0.09% weaker at 7.2676 per dollar, while its offshore counterpart also eased to 7.2695.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1714 per dollar, its strongest since February 21 and 861 pips firmer than a Reuters’ estimate of 7.2575.
The central bank has been setting its daily official midpoint guidance stronger than market expectations since mid-November, which markets interpret as a sign of unease over the currency’s decline.
“I’m still keeping my view that dollar/yuan will be kept under 7.35,” said Becky Liu, head of China macro strategy at Standard Chartered.
“There is limited incentive to move the line of defence here, given stable yuan is one of the few agreeable issues between Trump and Xi.
China has kept interbank liquidity conditions tighter to keep the yuan stable, as a sign of gesture for a smooth start of the negotiations.“
However, Trump this week criticised China and Japan for reducing the value of their currencies. Analysts say his remarks are unfounded, given the yuan has been relatively strong in trade-weighted terms and Beijing has made efforts to keep it stable.
