The goal was to prevent the yuan from falling too fast as
China's A shares plunged, said one of the people, with the benchmark Shanghai
Composite index (.SSEC), opens new tab posting its biggest one-day drop since
April 2022 on Monday, down 2.7%.
Red Sea disruption is 'very welcome' news for shipping
companies as rates double
"It is a clear policy signal to stabilise the yuan and
counter the negative market sentiment on equities," said Gary Ng, senior
economist for Asia Pacific at Natixis.
Overseas funds have sold roughly $1.6 billion in Chinese
equities so far this year, with investor confidence bruised by signs of
slowdown in the world's second largest economy.
Offshore yuan tomorrow-next forwards jumped to a more than
two-month high of 4.25 points late on Monday, reflecting signs of tighter
liquidity conditions.
The rise come as state banks in the offshore market
curtailed lending to their peers, one of the sources said.
The move effectively tightened up offshore yuan liquidity
and raised the cost of shorting the currency.
Meanwhile, the state banks were also selling dollars in the
onshore spot foreign exchange market to prevent rapid yuan declines, three
sources said.
Spot dollar selling became aggressive to defend the 7.2 per
dollar level, one of them said.
All the sources spoke on condition of anonymity as they are
not allowed to publicly discuss market conditions.
State banks often act on behalf of China's central bank in
the foreign exchange market, but they could also trade on their own behalf or
execute clients' orders.
The onshore yuan last traded at 7.1963 per dollar, down
nearly 1.4% so far this year, while its offshore counterpart last fetched
7.2047. Reuters