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Yuan devaluation is not to boost export: PBOC

On Tuesday, the PBOC cut the yuan’s reference rate against the U.S. dollar by nearly 1.9 percent, catching the global financial markets off guard and sparking a currency depreciation competition in the region.

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“Currently, there is no basis for the renminbi exchange rate to continue to depreciate”, PBOC assistant governor Zhang Xiaohui said Thursday.

Bond yields rose in major markets on Thursday after China’s central bank reassured investors there was no reason for its currency to keep falling.

The Chinese exchange rate for the yuan fell over 1% overnight even as Peoples’ Bank of China (PBOC) officials tried to stem the decline with verbal and monetary support.

The central bank had signalled that it would pay closer attention to the previous day’s closing market price when setting the official rate.

EUR/USD was down 0.45% to 1.1107 from Wednesday’s one-month highs of 1.1213.

The ChiNext Index, tracking China’s Nasdaq-style board of growth enterprises, added 2.4 percent to end at 2,684.26. But shares in Asia rose after the Chinese central bank’s assurances.

Japan’s Nikkei Stock Average was about flat, while Australia’s S&P ASX 200 was up 0.2%. Germany’s DAX gained 1.4% to 11,078.39 and Britain’s FTSE 100 added 0.8% to 6,620.92.

A man walks past yuan signs at a currency exchange in Hong Kong. But after a decade of little or no movement, the change rattled financial markets and threatened to fan political tensions with Europe and the United States.

Beijing’s moves eased concerns a cheaper yuan could trigger a “currency war”, or a competition among the world’s biggest economies to cheapen their own currencies to seek a competitive edge.

China is exporting “deflationary pressure”, said Morgan Stanley analysts Hans Redeker, Ian Stannard and Sheena Shah in a report.

The bank this week said the “one-time” correction was meant to give the market a greater role in determining the value of the yuan.

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European stock markets in London, Frankfurt and Paris closed lower Wednesday on worries China’s economy is struggling more than previously thought. In the first five months of this year, China’s outbound direct investment surged to almost $45 billion, according to Reuters, approaching the level of foreign direct investment inflows. Foreign automakers and luxury brand retailers could also see sales fall since imported Audi cars and Chanel bags will now be more expensive for Chinese consumers.

Pedestrians walk past a yuan and a US dollar currency sign in Hong Kong yesterday