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© Reuters. Banknotes of Chinese yuan and U.S. dollar are seen in this illustration picture taken September 29, 2022. REUTERS/Florence Lo/Illustration

SHANGHAI/BEIJING (Reuters) – China’s central bank has surveyed some foreign banks in the past week about the interest rates they offer to their clients for dollar deposits, people familiar with the matter said, as authorities step up efforts to slow the yuan’s depreciation.

The central bank also guided one commercial lender to lower such rates, one of the sources said, as recent weakness in the Chinese currency prompts authorities to more closely scrutinize foreign exchange dealings. But the source did not offer more details.

The move could potentially nudge companies, especially exporters, to convert more of their foreign exchange receipts into the yuan, which has weakened to near eight-month lows and lost nearly 5% so far this year. [CNY/]

Total FX deposits in China stood at $851.8 billion at end-May, data shows.

The People’s Bank of China did not immediately respond to Reuters request for comments.

The PBOC said in mid-May that authorities will resolutely curb large fluctuations in the exchange rate and study the strengthening of self-regulation of dollar deposits.

Weeks later, sources told Reuters that a self-regulatory body overseen by the central bank had told major state-owned banks to lower dollar deposit interest rates. Big banks were told to cap them at 4.3%, from the previous ceiling of 5.3%.

Widening bond yield differentials between the world’s two largest economies, fuelled by growing monetary policy divergence, have piled downside pressure on the yuan. China is poised to offer more policy support to bolster a sputtering economic recovery, while the U.S. Federal Reserve could keep interest rates higher for longer.

As part of the official measures to prevent the yuan from sinking too fast and too far, the PBOC set stronger-than-expected midpoint fixing guidance rates this week and state banks were spotted selling dollars a few times in both onshore and offshore markets, trading sources said.

Market participants interpreted the actions as the strongest sign yet that authorities are growing increasingly uncomfortable with the yuan’s quickening slide. And they expect policymakers could roll out further policy measures to raise the cost of currency speculation if one-way bets on yuan falls persist.

A Reuters poll on Thursday showed investors were increasing their short positions on the currency.

“Any attempt to counter weakness (will) probably only slow the pace of depreciation and not reverse a trend,” said Christopher Wong, FX strategist at OCBC Bank.

However, some market watchers said companies are unlikely to follow the authorities’ intended path and declining dollar deposit rates could even prompt them to direct their capital outside China to offshore accounts.

“The move could help increase offshore dollar deposits,” said a trader at a foreign bank, adding it may add downside pressure on China’s balance of payments and the yuan.

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