UPDATE 1-Bidirectional yuan volatility will become normal, according to FX regulator official

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SHANGHAI, June 10 (Reuters) – Two-way volatility in the yuan’s exchange rate will become normal and factors influencing the Chinese currency are complicated, the head of China’s foreign exchange regulator said Thursday.

The Chinese yuan has shown volatility in both directions, but has remained basically stable so far this year, Pan Gongsheng, head of the State Exchange Administration (SAFE), said in a speech.

The yuan has experienced high volatility recently, having gained around 12% against the dollar since May 2020 and reaching its strongest levels in more than three years.

Many Chinese policymakers have recently warned market participants against betting on unilateral currency moves, and the People’s Bank of China (PBOC) last week raised the ratio of required reserves to foreign currency deposits for the first time in 14 years.

The foreign exchange regulator said companies should avoid “pro-cyclical” and “naked” activities in managing their currency risks, as some have relied on the asymmetry of assets and liabilities to benefit from changes in exchange rates. exchange. Pan was referring to companies that did not hedge their foreign exchange transactions.

“Don’t bet on the appreciation or depreciation of the yuan. (The people who) always play will definitely lose, ”said Pan.

The SAFE official added that global market valuations were high against the backdrop of ultra-loose monetary policy and international financial markets could face correction risks from such high levels.

Global markets have “become detached from economic fundamentals, vulnerability has increased … this could lead to increased global risk aversion and changes in cross-border capital flows,” Pan warned.

China will increase quotas under the overseas investment program for qualified domestic institutional investors, Pan said.

Reporting by Winni Zhou and Andrew Galbraith; Editing by Jacqueline Wong

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