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Yuan鈥檚 closing at weakest in four months fuels depreciation hopes
Print Edition
THE yuan yesterday closed at its weakest against the US dollar in nearly four months, causing speculation for further depreciation on potential easing of monetary policies.
The yuan fell 0.3 percent to close at 6.1926 per dollar yesterday, capping a combined 0.9 percent drop for the past two days, the biggest two-day loss since 2007.
The currency briefly weakened to above 6.20 level before stabilizing in afternoon trading, according to China Foreign Exchange Trade System prices.
The weakening occurred despite the People’s Bank of China yesterday setting the central parity rate at 6.1231 per US dollar, the strongest in nine months. The yuan is allowed to trade within 2 percent on each side of the central parity rate.
The weakening also stopped the yuan surging against other currencies such as the yen and the euro.
Liu Dongliang, an analyst with China Merchants Bank, said companies have been less willing to convert foreign currencies into yuan after China reported weaker-than-expected trade on Monday.
“Companies are expecting a depreciation of the yuan but it seems the central bank still intends to stabilize the market,” said Liu. “But the currency may weaken further if the central bank eventually allows the yuan to top the 6.20 level.”
The yuan has fallen 0.78 percent since the central bank surprised the market with an interest rate cut last month. There has been speculation of another reduction in the reserve requirement ratio for banks to allow them to put aside more funds for lending.
Easier monetary policies could lower interest rates in the market, eroding the Chinese currency’s attractiveness for investors.
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