The offshore renminbi exchange rate fell to a record low on Wednesday, putting further pressure on China’s central bank to directly intervene to prop up the country’s currency.
The offshore rate fell as much as 0.7 per cent to Rmb7.2281 against the dollar, the lowest on record since Hong Kong clearing banks were first allowed to freely open renminbi accounts in 2010.
Meanwhile, the more tightly regulated onshore rate also fell 0.7 per cent to Rmb7.225. That drop took the onshore rate down 13.6 per cent for the year to date, underscoring the impact of widening policy divergence between a dovish China seeking to shore up growth and a hawkish US Federal Reserve.
Measures taken by the People’s Bank of China have so far stopped short of deploying significant foreign exchange reserves, instead relying on indirect measures to discourage bets on continued falls and slow the pace of depreciation.
On Monday, the central bank introduced new measures effectively making it more expensive to short the currency.
The offshore renminbi, introduced to facilitate greater international use of China’s currency, is not subject to the onshore rate’s dollar trading band, which limits moves to 2 per cent in either direction from a midpoint set each morning by the central bank.
Following a serious sell-off in 2015 spurred by a one-off devaluation, however, Chinese authorities throttled liquidity in the Hong Kong market and the offshore renminbi has since closely followed the onshore rate.
“Since the PBoC can do little to change the fundamental forces driving the dollar’s gains, attempts to reverse market trends would likely fail, undermining its credibility,” Wei He, an analyst at Gavekal Dragonomics, said.
“The better course is probably to allow the current trend to play out, while limiting volatility and waiting for the inevitable reversal of direction.”