MNI BRIEF: PBOC Eases Rules On Capital Inflow To Curb Weak CNY

The People's Bank of China has relaxed rules to allow firms to borrow more overseas, enabling more capital inflows at a time when the yuan faces pressure against the U.S. dollar.

The central bank raised the so-called macro-prudential parameter for companies and banks’ cross-border financing to 1.5 from 1.25, in order to “increase their source of funding and optimise the structure of their balance sheet”, the central bank said in a statement on Thursday. The bank raise the parameter last October to 1.25 from 1 when the currency plunged to a fresh low against USD.

The announcement came after the PBOC set CNY fixing at CNY7.1466 on Thursday, much stronger than the estimated CNY7.2146. The fixing remains stronger than expected in average since mid-June. MNI reported that the PBOC would take actions to curb any big depreciation of the yuan. (See MNI: PBOC Seen Capping Further Sharp Yuan Weakness）

Both offshore yuan (CNH) and CNY jumped on the announcement. USDCNY opened at CNY7.1862, over 300pips lower than the CNY7.2197 closing price at 16:30pm on Wednesday. USDCNH also dropped about 400pips on the move. (See MNI: New PBOC Party Chief To Push Prudent Policy, Fx Reform)