Yuan hits 4-year low on 2nd day of devaluation
Print Edition
CHINA’S yuan hit a four-year low yesterday, falling for a second day after authorities devalued it as part of reforms to make the exchange rate system more market-oriented.
Spot yuan in China fell to 6.45 per dollar, its weakest since August 2011, after the central bank set its daily midpoint reference at 6.3306, even weaker than Tuesday’s devaluation.
The yuan fared worse in international trade, touching 6.59.
The central bank, which had described the devaluation as a one-off step to make the yuan more responsive to market forces, dismissed expectations of continued falls, saying the movements in the yuan exchange rate were normal.
“Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan,” the People’s Bank of China said.
Foreign exchange traders later said state-owned banks were selling dollars on behalf of the PBOC to keep the yuan around 6.43. “Apparently, the central bank does not want the yuan to run out of control,” said a trader at a European bank in Shanghai.
A trader at another European bank said the unexpected devaluation had caused “some panic” in markets. “Although the central bank made explanations again today, stressing the yuan would not show sustained depreciation, the market is very jittery,” he said.
BMI analysts downgraded end-year forecasts for the currency to 6.83, down 10 percent from pre-devaluation levels.
The yuan lost 3.5 percent in China in the past two days, and around 4.8 percent in global markets. Its slide pulled down other Asian currencies yesterday, with Indonesia’s rupiah and Malaysia’s ringgit hitting 17-year lows, and the Australian and New Zealand dollars touching six-year lows.
The US, long a critic of China’s currency regime, offered a mild response saying it was too early to judge the move.
“China has indicated that the changes announced today are another step in its move to a more market-determined exchange rate,” the US Treasury said, adding that “any reversal in reforms would be a troubling development.”
Tuesday’s devaluation followed a run of poor economic data and raised market suspicions that China was embarking on a longer-term slide in the exchange rate.
Figures released yesterday underlined the economy’s sluggish growth. Factory output growth slipped to 6 percent in July year on year, and fixed asset investment and retail sales were lower than expected.
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