SHANGHAI, March 22 (Reuters) - China's yuan weakened to a four-month low against the dollar on Friday, breaching a key threshold, pressured by rising market expectations of further monetary easing to prop up growth in the world's second-largest economy.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1004 per dollar, 62 pips weaker than the previous fix of 7.0942.
But the Chinese central bank continued its months-long practice of setting the rate at levels firmer than market projections, traders said.
Friday's midpoint was 1,143 pips firmer than a Reuters estimate of 7.2147, the biggest discrepancy since November.
In the spot market, the onshore yuan opened at 7.1950 per dollar and quickly breached the psychologically important 7.2 per dollar level to hit a low of 7.24, the softest since Nov. 17, 2023.
It last traded at 7.2215 as of 0207 GMT, 221 pips softer than the previous late session close.
The offshore yuan followed the weakening trend to hit a more than four-month low of 7.2494 per dollar. It last fetched 7.2464.
Currency traders attributed the sudden yuan weakness to rising monetary easing expectations after senior PBOC officials hinted at further room to reduce bank reserve requirements.
China has room to further cut banks' reserve requirement ratio (RRR), among other policy tools at its disposal, a deputy central bank head said on Thursday, underlining market expectations for more easing measures to bolster the economy. (Reporting by Shanghai Newsroom; Editing by Jamie Freed)
