Bloomberg News

Yuan Forwards Climb on Signs Reserve-Ratio Cut to Boost Economy

February 20, 2012

Feb. 20 (Bloomberg) -- China’s yuan forwards strengthened for a second day on speculation a bank reserve-ratio cut will help ease a slowdown in the world’s second-largest economy.

The People’s Bank of China lowered the amount of cash that lenders must set aside as reserves by half a percentage point to 20.5 percent over the weekend, effective Feb. 24. European finance ministers will meet in Brussels today to reconcile demands made on Greek leaders for a 130 billion-euro ($172 billion) aid package for the country.

“The market is expecting more measures will come out to support the economy,” said Liu Dongliang, a Shenzhen-based senior analyst at China Merchants Bank Co., the nation’s sixth- biggest lender. “The optimism about Greece also improves risk appetite.”

Twelve-month non-deliverable forwards rose 0.05 percent to 6.2814 per dollar as of 4:30 p.m. in Shanghai, according to data compiled by Bloomberg. The contracts were at a 0.3 percent premium to the onshore spot rate, according to data compiled by Bloomberg.

The yuan weakened 0.04 percent to 6.3017 per dollar, according to the China Foreign Exchange Trade System. In Hong Kong’s offshore market, the yuan gained 0.03 percent to 6.2950.

The central bank strengthened the daily reference rate by 0.02 percent to 6.2938. The currency is allowed to trade as much as 0.5 percent on either side.

A 50-basis point cut may add 400 billion yuan ($63 billion) to the financial system, according to Australia & New Zealand Banking Group Ltd. UBS AG says the move frees up about 350 billion yuan and may have been triggered by tight interbank liquidity. The previous reduction in December was the first since 2008.

--Judy Chen. Editors: Shiyin Chen, John Liu

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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