According to Bloomberg, prices of commodities in China sharply dropped as the country’s currency yuan depreciated against the dollar to the lowest level since the 2008 financial crisis and fear about China’s growth.
Base metals, including tin, copper, and aluminum traded in Shanghai, suffered heavy losses on Monday.
The dollar appreciates to a record high among major currencies, forcing China to buy materials, energy, and food at more expensive prices.
Bloomberg reported that for the first time in two years, China’s central bank has to set the daily reference limit rate for the yuan lower than 7 to the dollar.
The yuan ended its domestic trading session at a record low in 28 months against the dollar on Monday, near the downside trading limit, regardless of China’s central bank efforts to control its currency’s depreciation.
The yuan weakens at times when investors question China’s growth this year amid an economic downturn hit by its controversial zero-Covid policy and a real estate crisis.
To slow down the yuan’s drop, China’s central bank, the People’s Bank of China (PBOC), announced that it would raise the risk reserves requirement to 20% for financial institutions when they buy foreign-exchange forwards.
The move from China’s central bank made it costlier for investors in the derivatives market to bet against the yuan, helping to slow its decline. However, Peiqian Liu, an economist at NatWest Markets, told Bloomberg, “By imposing the risk reserve requirement, the PBOC aims to slow the pace of depreciation but it will unlikely turn the tide.”