The PBOC also said on Thursday that it would monitor “abnormal” cross-border flows after the devaluation raised fears that investors would seek to pull capital out of China in anticipation of further falls in the currency.
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The Chinese central bank has effectively been keeping the yuan pegged to the dollar, setting a fixed rate every day and allowing it to trade within 2% on either side of that rate. “After the deviations accumulated by other economic factors and difficulties are corrected, and based on China’s current account situation and the steady monetary policy, the yuan will return to appreciation in the future”, said Zhang Xiaohui, Assistant Governor, PBOC.
The devaluation was engineered by Chinese authorities, and some analysts see it as a way to help China’s slowing economy by making its exports cheaper and therefore easier to sell overseas.
The offshore Yuan went as low as $1=RMB6.47 intra-day today.
The dollar traded sideways in Asia on Friday after getting a lift from a solid US retail sales report that boosted expectations the Federal Reserve could raise rates as early as next month.
Emerging market currencies including the Indonesian rupiah, Philippine peso and South Korean won rose slightly against the dollar after China yesterday trimmed its yuan reference rate 1.1 percent.
The comments come after the PBOC’s yuan moves roiled markets, spurred selling of the currency and sparked criticism from politicians in the U.S. and elsewhere.
China’s economic growth has slowed to an annual rate of just 7%, which is healthy for most countries but far below the previous decade’s double-digit pace.
Crude oil futures remained under pressure, plunging to 6-1/2-year lows after data revealed a big rise in U.S. stockpiles, fuelling fears of a growing global glut. It’s allowing market forces more influence over the currency, which, given weak recent data, “conveniently… means a weaker” yuan. The People’s Bank of China said Thursday there’s no basis for depreciation to persist and that it will step in to curb large fluctuations.
China keeps a tight grip on its currency on worries sudden fund outflows or inflows could cause more financial risk and challenge its control, but it has also pledged to move towards more flexibility.
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The yuan and the Chinese economy will eventually recover and get stronger as global financial markets become calmer.
