The renminbi’s offshore exchange rate fell to a record low on Wednesday, putting further pressure on China’s central bank to intervene directly to support the country’s currency.
The offshore rate fell 0.7% to 7.2281 Rmb against the dollar, the lowest on record since Hong Kong clearing banks were first allowed to open renminbi accounts freely in 2010.
Meanwhile, the more tightly regulated onshore rate also fell 0.7% to 7.225 Rmb. The decline sent the onshore rate down 13.6% year-to-date, underscoring the impact of widening policy divergence between a dovish China seeking to support growth and a hawkish US Federal Reserve.
Measures taken by the People’s Bank of China have so far failed to deploy large foreign exchange reserves, relying instead on indirect measures to discourage betting on further declines and slow the pace of the depreciation.
On Monday, the central bank introduced new measures, effectively making it more expensive to short sell the currency.
The offshore renminbi, introduced to facilitate greater international use of the Chinese currency, is not subject to the dollar trading band of the onshore rate, which limits movement to 2% in either direction from a point median fixed each morning by the central bank.
However, following a sell-off in 2015 spurred by a one-off devaluation, Chinese authorities limited liquidity in the Hong Kong market and the offshore renminbi has since tracked the onshore rate closely.
“Since there is little the PBoC can do to change the fundamental forces driving the dollar’s gains, attempts to reverse market trends would likely fail, undermining its credibility,” Wei He said. , analyst at Gavekal Dragonomics.
“The best thing is probably to let the current trend play out, while limiting volatility and waiting for the inevitable reversal in direction.”