China raises key parameter to facilitate cross-border financing

China on Thursday raised a key parameter in its macro-prudential management to expand companies and financial institutions' cross-border funding sources, an official statement said.

The macro-prudential adjustment parameter, a multiplier that decides the upper limit of outstanding cross-border financing available to an institution, has been revised from 1.25 to 1.5, effective immediately, according to a joint statement by the People's Bank of China and the State Administration of Foreign Exchange.

The upward revision aims to further improve the macro-prudential management of cross-border financing and guide enterprises and financial institutions to optimize their asset-liability structure, the statement added.

Experts said the adjustment reflects the regulators' intention to guide market exchange rate expectations.

The upward revision will lower the demand of domestic financial institutions and enterprises for domestic funds in foreign currency and thereby lead the current tight domestic supply and demand conditions to a more balanced level, said Zhao Qingming, a specialist in international finance.

He said the adjustment will ease the depreciation pressure on the yuan.

Wen Bin, chief economist of China Minsheng Bank, said the regulators still have ample tools in the "currency toolbox." These include the foreign exchange reserve requirement ratio and risk reserve requirement for forward foreign-exchange sales, which can be used to guide market expectations appropriately and effectively whenever necessary.

China raised the macro-prudential adjustment parameter from 1 to 1.25 in late October last year.

The central parity rate of the yuan strengthened 20 pips to 7.1466 against the U.S. dollar on Thursday, according to the China Foreign Exchange Trade System.