China's central bank, the People's Bank of China (PBOC), is implementing measures to bolster the yuan as it trades near 16-month lows. This follows five consecutive days of USD/CNY trading at the weak end of the 2% band around the official rate, a first in recent history.
In a bid to stabilize the currency, the PBOC announced plans to increase the amount of U.S. dollars held in Hong Kong, aiming to enhance capital flows and allow companies to secure larger overseas loans.
The yuan's decline has been exacerbated by a strong dollar, falling yields on Chinese bonds, and looming trade barriers as Donald Trump prepares to take office next week. The central bank has been exploring various strategies since late last year to prevent further depreciation, including warnings against speculative trading.
On Monday, authorities reiterated their caution against speculation in the yuan and raised foreign loan limits for businesses to facilitate greater foreign currency inflows.