Currency firms on plans to adjust rate mechanism
Both the onshore and offshore yuan surged against the U.S. dollar on Wednesday after the Dragon Boat Festival holidays, which experts said reflected the central government's efforts to prop up the Chinese currency.
By 5:50 p.m. Beijing time Wednesday, the onshore yuan had strengthened by about 0.56 percent to 6.8148 per dollar, its strongest against the greenback in about six months. Meanwhile, the off-shore yuan had firmed 0.82 percent to 6.7675.
The central bank had set Wednesday's daily fixing at 6.8633 per dollar, its strongest in about two weeks.
Analysts have noted that the Chinese government's decision to amend the central parity rate mechanism has prompted banks to reserve capital to cope with future changes, which drove up the yuan's lending interest.
Chinese currency authorities were considering introducing contra-cyclical factors into the yuan's central parity exchange rate mechanism against the U.S. dollar so the mechanism better reflected the state of China's economy, the China Foreign Exchange Trade System said in a statement posted Friday.
The government's introduction of contra-cyclical factors aims to support the yuan when it is under pressure to depreciate, Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times on Wednesday.
Some Chinese investors had bought the yuan after ratings agency Moody's downgraded the credit ratings of the mainland and Hong Kong on Wednesday, which caused some banks to run short of yuan, forcing them to borrow the currency at higher rates, financial news -portal yicai.com reported Wednesday, citing an unnamed analyst.
Zhou also noted that the government might have intervened to combat short selling of the yuan recently.
