Yuan weak­ened for third day as mar­kets re­as­sured

The China Post - - INTERNATIONAL - BY BILL SAVADOVE

Main­land China weak­ened its cur­rency for the third con­sec­u­tive day Thurs­day, but fi­nan­cial mar­kets that had been shaken by the sur­prise de­val­u­a­tion took heart as author­i­ties pledged not to let the yuan plum­met.

The cen­tral bank trimmed the ref­er­ence rate for the yuan — also known as the ren­minbi ( RMB) — by 1.11 per­cent to 6.4010 yuan for US$1, the China For­eign Ex­change Trade Sys­tem said, from the pre­vi­ous day’s 6.3306.

The cut was less than the pre­vi­ous two days and came af­ter re­ports the Peo­ple’s Bank of China (PBoC) in­ter­vened Wed­nes­day to stem the yuan’s fall.

China adopted a more mar­ke­to­ri­ented method of cal­cu­lat­ing the cur­rency rate this week in a move widely seen as a de­val­u­a­tion, rais­ing fresh ques­tions about the health of the world’s sec­ond­largest econ­omy.

Af­ter global stock and cur­rency mar­kets stag­gered in re­sponse, the PBoC went on the of­fen­sive Thurs­day, telling re­porters that the yuan was still a strong cur­rency and that Bei­jing would keep the unit sta­ble.

“Cur­rently, there is no ba­sis for the ren­minbi ex­change rate to con­tinue to de­pre­ci­ate,” as­sis­tant gover­nor Zhang Xiao­hui told a brief­ing, ac­cord­ing to a tran­script.

“The cen­tral bank has the abil­ity to keep the ren­minbi ba­si­cally sta­ble at a rea­son­able and bal­anced level,” she said.

The com­ments drove a re­lief rally Thurs­day in Asian shares and Asi­aPa­cific cur­ren­cies, which suf­fered their big­gest two-day sell­off since 1998 this week, although an­a­lysts said sen­ti­ment re­mained frag­ile.

Shang­hai shares closed up 1.76 per­cent on Thurs­day, while Hong Kong and Tokyo also rose.

“It’s likely the worst is over,” Pa­trick Ben­nett, a strate­gist at Cana­dian Im­pe­rial Bank of Com­merce in Hong Kong, told Bloomberg News.

“PBoC in­ter­ven­tion has calmed the mar­ket. There is not a sense that the on­shore yuan will weaken for­ever.”

The yuan ended at 6.3982 to the dol­lar on Thurs­day, down from the pre­vi­ous day’s close of 6.3870 but stronger than the cen­tral bank’s ref­er­ence rate.

‘Com­plete non­sense’ -

Main­land China keeps a tight grip on the unit, al­low­ing it to fluc­tu­ate up or down just two per­cent on ei­ther side of the ref­er­ence rate, which it sets daily.

The PBoC on Tues­day an­nounced a “one-time cor­rec­tion” of nearly two per­cent in the yuan’s value against the green­back as it changed the mech­a­nism.

Pre­vi­ously, it based the fix­ing on a poll of mar­ket-mak­ers, but de­clared it would now also take into ac­count the pre­vi­ous day’s close, for­eign ex­change sup­ply and de­mand and the rates of ma­jor cur­ren­cies.

It has since low­ered the cen­tral rate twice more, and the week’s com­bined drop is the big­gest since China set up its mod­ern for­eign ex­change sys­tem in 1994, when it de­val­ued the yuan by 33 per­cent at a stroke.

An­a­lysts viewed the move as a way for China to both boost ex­ports by mak­ing its goods cheaper abroad and push eco­nomic re­forms as it seeks to be­come one of the re­serve cur­ren­cies in the In- ter­na­tional Mon­e­tary Fund’s SDR (spe­cial draw­ing rights) group.

The volatil­ity in the nor­mally sta­ble unit has raised con­cerns, and many an­a­lysts pre­dict the yuan will con­tinue to de­pre­ci­ate in the com­ing months, im­pact­ing global trade flows.

Bloomberg News re­ported Wed­nes­day the cen­tral bank had in­ter­vened in the mar­ket to buy dol­lars and prop up the yuan, which PBoC Deputy Gover­nor Yi Gang de­clined to con­firm at Thurs­day’s brief­ing.

But he said the PBoC will ex­er­cise “ef­fec­tive man­age­ment” in case of large fluc­tu­a­tions and dis- missed ru­mours that of­fi­cials had set a tar­get for a 10 per­cent de­pre­ci­a­tion in the yuan to spur ex­ports.

“This is com­plete non­sense, com­pletely with­out ba­sis,” he said.

Speak­ing a day ear­lier, PBoC economist Ma Jun dis­missed the pos­si­bil­ity that China was seek­ing to wage a cur­rency war, say­ing there was no need as ex­ports were ex­pected to pick up in the sec­ond half of the year.

“China does not have the need to start a cur­rency war to gain ad­van­tage,” he was quoted as say­ing by the main­land China’s of­fi­cial Xin­hua news agency.

AFP

A for­eign cur­rency ex­change booth sign show­ing the sym­bol for the Chi­nese yuan is seen in Hong Kong on Thurs­day, Au­gust 13. Main­land China cut the ref­er­ence rate for its cur­rency for the third straight day on Thurs­day, author­i­ties said, af­ter their sur­prise de­val­u­a­tion of the yuan this week un­set­tled global fi­nan­cial mar­kets.

Newspapers in English

Newspapers from Taiwan

© PressReader. All rights reserved.