The offshore yuan has continued its decline, reaching around 7.27 per dollar and nearing its lowest levels in two weeks. This downward trend is driven by increasing concerns over the effectiveness of China's stimulus measures in countering the impact of new US tariffs. Despite China setting a 5% GDP growth target, expanding its deficit to the highest level in three decades, and announcing initiatives to stimulate consumption and domestic demand, the economy still struggles with sluggish growth. Markets, however, received a slight boost after President Trump indicated a more selective approach to tariffs.
In terms of monetary policy, the People's Bank of China has announced a shift from focusing on the medium-term lending facility (MLF) rate to emphasizing the seven-day reverse repo rate, implementing a new bidding system for MLF loans. While this move aims to maintain liquidity, it has also increased uncertainty regarding borrowing costs. Additionally, the central bank plans to issue CNY 450 billion in one-year MLF loans and has hinted at potential rate cuts, causing further pressure on the yuan.
