Friday, December 11, 2015
The yuan closed at the weakest level in more than four years yesterday on signs the central bank is allowing depreciation to boost exports in the run-up to the Federal Reserve's interest- rate decision.
The People's Bank of China cut the yuan's reference rate, which restricts the onshore spot rate's moves to a maximum 2 percent on either side, by 0.15 percent to a four-year low of 6.4236 to the dollar. The monetary authority has cut the fixing on six of the eight trading days since winning reserve status at the International Monetary Fund on November 30. There is a 78 percent chance the Fed will raise borrowing costs at its December 15-16 meeting, futures contracts show.The yuan dropped 0.15 percent to 6.4378 a dollar, the weakest close since August 2011. The currency fell for a fifth day and has lost 0.6 percent this month. In Hong Kong's offshore market, the yuan slipped 0.03 percent to 6.5221, taking its decline in December to 1.4 percent."All it takes for the renminbi to go down is for the PBOC to stop propping it up," said David Woo, Bank of America Corp's head of global rates and foreign-exchange research. "I see the Fed hike next week as giving them the perfect excuse to slow further, if not suspend their foreign-exchange interventions altogether."Johanna Chua, the chief economist for Asia Pacific at Citigroup Global Markets in Hong Kong, said: "There's a build-up of dollar demand in the run-up to the Fed liftoff. Why reverse the trend and waste your dollars?"The recent drop in the yuan is mainly due to the appreciation of the dollar, Wang Yungui, a director at the State Administration of Foreign Exchange, said yesterday. "There isn't any basis for long-term depreciation," he said.Wang also said the decrease in China's foreign reserve was due to the exchange loss incurred by the non-US assets due to the appreciation of the greenback, as well as the provisions for the financing demand of the "One Belt One Road" scheme. STAFF REPORTER AND BLOOMBERG