The details

China sent strong signals on the stability of the yuan on Wednesday,
after Moody’s Investors Service downgraded its outlook on the country’s credit rating to negative.

The People’s Bank of China set the daily reference rate for the managed currency at 7.1140 dollars per yuan,
which is more than 0.3% below the average estimate in a Bloomberg survey.

The decline is the largest in the daily reference rate since more than two weeks,
and suggests that Beijing is willing to use its monetary tools to keep the yuan stable.

“Setting the daily reference rate below expectations is a clear signal from the Chinese government that it is committed to the stability of the yuan,
” said Christopher Wong, a strategist at Oversea Chinese Banking Corp.

Wong added that “the market will not rule out intervention from policymakers if there are significant fluctuations in the yuan.”

The decision by China to set the daily reference rate below expectations came a day after Moody’s downgraded its outlook on China’s credit rating to negative. Moody’s cited concerns about rising Chinese government debt,
the slowdown in the property market, and the country’s increased use of fiscal stimulus.

Expectations

Some analysts believe that Moody’s downgrade could lead to increased pressure on the yuan.
However, the decision by China to set the daily reference rate below expectations suggests
that the Chinese government is willing to use its monetary tools to keep the yuan stable.

This move is likely to send a strong signal to markets that China is committed to the stability of the yuan,
and that it will not allow Moody’s downgrade to derail its efforts.

China Sends Strong Signals on Yuan Stability

China Sends Strong Signals on Yuan Stability

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