China's yuan stays range-bound as benchmark loan rates left unchanged

By Georgina Lee HONG KONG, April 20 (Reuters) - China's yuan was slightly weak but within a narrow range on Thursday as U.S. interest rate expectations lifted the dollar while local yuan benchmark rates were kept steady, leaving markets fretting about domestic growth and export flows. While a stronger dollar would mean more yuan weakness, traders said uncertainty over how long the U.S. Federal Reserve would keep monetary policy tight and about how far the yuan might fall was keeping exporters sidelined and the currency range-bound. The spot yuan opened at 6.8901 per dollar and was changing hands at 6.8896 at midday, 45 pips weaker than the previous late session close but 0.13% stronger than the midpoint.

The People's Bank of China set the midpoint rate at 6.8987 per U.S. dollar prior to market open, weaker than the previous fix 6.8731. The spot rate is currently allowed to trade with a range 2% above or below the official fixing on any given day. Policymakers' decision to keep the medium-term lending facility (MLF)and loan prime rates (LPR) unchanged for an eighth straight month was largely expected.

The one-year LPR and five-year LPR were unchanged at 3.65% and 4.3% respectively. The People's Bank of China (PBOC) said it was keeping the rate on 170 billion yuan ($24.75 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.75% from the previous operation. The last time MLF rate was cut was in August 2022. "Given the strong rebound that we have seen from the first quarter economic data, there is no urgency to provide further easing at this stage," said Khoon Goh, head of Asia research at ANZ.
The central bank would only likely consider easing further if the momentum of the recovery were to wane going forward, Goh said. China's first quarter gross domestic product grew 4.5% year-on-year, beating expectations.

The market expects the U.S. central bank to raise interest rates by 25 basis points in its upcoming policy meeting in May before halting further rate hikes.

Fed officials have adopted a hawkish tone on the need to keep hiking rates in order to bring down inflation even as markets price for likely rate cuts later this year. Given the still wide interest rate differential between China and the United States, exporters in China are holding onto their dollar export receipts to earn a higher yield on these proceeds rather than converting them into yuan, said Goh. This has also kept a lid on the yuan's strength.

The global dollar index eased marginally to 101.961 from the previous close of 101.968.

The offshore yuan was trading 0.08% weaker than the onshore spot at 6.895 per dollar.

The one-year forward value for the offshore yuan traded at 6.7275 per dollar, indicating a roughly 2.49% appreciation within 12 months. The yuan market at 3:40AM GMT:

ONSHORE SPOT: Item Current Previous Change PBOC midpoint -0.37% 6.8987 6.8731

Spot yuan -0.07% 6.8896 6.8851

Divergence from
midpoint*

-0.13%
Spot change YTD

0.15% Spot change since 2005
revaluation 20.13%
OFFSHORE CNH MARKET

Instrument Current Difference from onshore Offshore spot yuan
* 6.895 -0.08%

Offshore
non-deliverable 6.731 2.49% forwards
**


*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. .

(Reporting by Georgina Lee; Editing by Simon Cameron-Moore)