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BEIJING, October 25 (TMTPOST) — The macro-prudential adjustment parameter for cross-border financing for enterprises and financial institutions was raised from 1 to 1.25, the People"s Bank of China and the State Administration of Foreign Exchange (SAFE) announced on Tuesday.
On the night before the parameter was adjusted, the offshore USD/RMB exchange rate fell below the 7.3 level in the overnight session. From the close of the day session on Monday to the opening of the morning session the following day, the offshore RMB exchange rate depreciated by more than 2% and once declined to 7.36 in the morning session on Tuesday, with a slight adjustment to around 7.33 during the session.
In the early trading session of Tuesday, the onshore RMB against the USD depreciated. That day, the mid-price USD/RMB exchange rate was 7.1668, 438 basis points lower than the previous day. After the opening bell, the USD/RMB exchange rate depreciated to a low of 7.3083, the lowest since early 2008, from about 7.26 at the close of the previous day"s overnight trading.
Wang Youxin, a senior researcher at the Bank of China Research Institute, explained that the current re-adjustment of macroprudential adjustment parameters for cross-border financing of enterprises and financial institutions is mainly based on the increased pressure of RMB depreciation, strengthened exchange rate depreciation expectations, and increased pressure of short-term cross-border capital outflow due to exchange rate fluctuations.
The macroprudential adjustment parameter for cross-border financing is one of the essential adjustment tools for the macro-prudential management of full-covered cross-border funding. According to the Notice of the People"s Bank of China on Matters Concerning the Macroprudential Management for Cross-border Financing issued in 2017, the risk-weighted balance maximum limit of cross-border financing for enterprises and financial institutions is equal to the product of capital or net assets, cross-border financing leverage ratio and macro-prudential adjustment parameter.
