The daily reference rate was set at 6.3975 yuan to $1.0, up from 6.4010 the day before, the China Foreign Exchange Trade System said.
Advertisement
In the previous two days, the central rate – around which the yuan is allowed to trade in a band of plus or minus two per cent – had been marked 1.9 and 1.6 per cent lower, respectively.
Beijing’s decision on Aug. 11 to devalue the Chinese yuan to its lowest rate against the U.S. dollar in almost three years has seen the ruble slide once more: On August 12, the Russian currency fell against the U.S. dollar and the euro, reaching its lowest rate since February.
Tim Harcourt, the JW Nevile Fellow in Economics at the UNSW Business School, says the action is an attempt to boost the country’s struggling export sector by making prices more competitive, and it will have ramifications at home.
The central bank also said 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. Massachusetts described the yuan’s current rate as “near equilibrium”.
ANALYST VIEW: The Chinese central bank’s “opaque communications policy may well have led to panic over-selling earlier in the week”, Angus Nicholson of IG markets said in a commentary.
China’s currency devaluation bombshell this week blew apart the growing consensus that global inflation had bottomed out and was slowly moving higher, forcing investors to reconsider their assumptions on a wide range of financial markets.
The PBOC attempted to calm fears over the yuan’s direction, reiterating Wednesday’s assertion that there is no basis for further depreciation given strong economic fundamentals.
China has consistently stressed that this is a one-off devaluation designed to make its currency more tied to market forces, like the US dollar or the pound.
Shanghai copper futures advanced 0.6 percent to 39,580 yuan a ton and aluminum was little changed at 12 140 yuan a ton.
The dollar’s strength together with loss Japanese monetary policy has meant that since mid-2012 the yuan is 60% stronger than the Japanese yen, the currency of a country which which it competes fiercely for exports.
The possibility that China’s move will trigger a beggar-thy-neighbor currency war.
The People Bank of China follows a different playbook.
Meanwhile, central bank adviser Huang Yiping told Bloomberg that China is unlikely to permit a sharp yuan depreciation and retains the ability to support the currency.
Advertisement
On the other hand, continued Pratley, the Chinese economy may be even weaker than the official data, “which nobody trusts anyway”.
