Chinese Yuan Exchange Rate: Key Factors Behind Monday’s Decline

The Chinese yuan started the new week with a significant decline against the dollar, with its reference price dropping by 34 Chinese pips to 7.1084 yuan per dollar on Monday, compared to 7.1055 yuan per dollar on Friday at the end of last week’s trading session.

According to Xinhua News Agency, Chinese rules allow the yuan to rise or fall by 2% from the central bank’s reference rate every trading day in the foreign exchange market.

It is noted that the indicative price of the yuan against the dollar is determined based on the buying rates provided by major financial institutions before the start of interbank market transactions daily.

This comes as the People’s Bank of China (the central bank) injects a large amount of cash liquidity into the banking system today through reverse repurchase operations and medium-term lending mechanisms.

The bank injected 89 billion yuan ($12 billion) through reverse repurchase operations for a period of 7 days with an interest rate of 1%. Meanwhile, it injected 995 billion yuan through medium-term lending facilities with a maturity of one year and an interest rate of 2%. This is the same interest rate as the previous lending operation according to the same mechanism.

(Xinhua)