Chi­nese yuan might fall fur­ther, but keep slower pace: an­a­lyst

The China Post - - LOCAL -

The Chi­nese yuan is ex­pected to con­tinue to fall fur­ther in the sec­ond half of this year af­ter the latest steep de­cline, but the pace of the cur­rency’s de­pre­ci­a­tion will be­come slower, an an­a­lyst said Wed­nes­day.

Penny Chen, a fund man­ager at Man­ulife China Dim Sum High Yield Bond Fund, said that as the U.S. Fed­eral Re­serve is ex­pected to kick off an in­ter­est rate hike cy­cle later this year, non-U.S. dol­lar cur­ren­cies will de­pre­ci­ate against the green­back ac­cord­ingly.

The latest move by the Peo­ple’s Bank of China (PBOC) to cut the yuan’s ref­er­ence rate sharply to al­low the Chi­nese cur­rency to fall sig­nif­i­cantly shows that the POBC seized the an­tic­i­pated Fed rate hike as a rea­son to drag down the yuan, as China’s eco­nomic fun­da­men­tals need a weaker yuan to sup­port growth, Chen said.

On Wed­nes­day, the PBOC low­ered the yuan’s ref­er­ence rate by 1.62 per­cent af­ter a 1.86 per­cent cut seen a day ear­lier. Fol­low­ing the PBOC’s hints, the yuan fell 1.82 per­cent at one point Wed­nes­day, ex­tend­ing from an al­most 2 per­cent drop seen the pre­vi­ous day.

Mar­ket an­a­lysts said China wanted to take ad­van­tage of the de­val­ued yuan to boost its ex­ports in a bid to help the coun­try achieve the of­fi­cially tar­geted 7 per­cent growth in the econ­omy for 2015.

Fol­low­ing the cut in the yuan’s ref­er­ence rate, the PBOC said in a state­ment that the re­form of a yuan ex­change rate for­ma­tion mech­a­nism will con­tinue to be pushed for­ward in line with mar­ket ori­en­ta­tion.

Chen said that while China is lead­ing its cur­rency to trend lower, it needs to con­trol the pace of the de­pre­ci­a­tion at a time when the coun­try is im­prov­ing its fi­nan­cial mar­ket in a bid to en­hance glob­al­iza­tion. She said that China needs a more sta­ble yuan and to pre­vent the cur­rency from tak­ing a big swing.

So, the an­a­lyst said, China could slow the yuan’s de­pre­ci­a­tion against the U.S. dol­lar to sta­bi­lize the do­mes­tic for­eign ex­change mar­ket in the sec­ond half of this year.

Echo­ing Chen, Liang Kuoyuan, pres­i­dent of Yuanta-Po­laris Re­search In­sti­tute said that China needs to im­prove the trans­parency of its cur­rency mar­ket to nar­row the gap with its for­eign coun­ter­parts by re­duc­ing its ma­nip­u­la­tion of the yuan.

If the PBOC con­tin­ues to al­low the yuan to fluc­tu­ate in a wide range, Liang said, China’s ef­forts to boost its fi­nan­cial mar­ket glob­al­iza­tion could be com­pro­mised.

The steep de­cline of the yuan has set off another cur­rency dep­re­ca­tion com­pe­ti­tion in the re­gion. The Tai­wan dol­lar, which is one of the re­gional cur­ren­cies fol­low­ing the yuan in de­pre­ci­a­tion, fell 2.22 per­cent against the U.S. dol­lar in the past two ses­sions.

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