China cuts yuan peg in biggest move since devaluation

China wants to keep the market guessing on its fixings, its policy goal being to prevent speculation on the currency. — Reuters file pic
China wants to keep the market guessing on its fixings, its policy goal being to prevent speculation on the currency. — Reuters file pic

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SHANGHAI, May 4 — China’s central bank today fixed the yuan currency nearly 0.60 per cent weaker against the US dollar, according to the national foreign exchange market, the biggest downward move since devaluing the unit in August last year.

The People’s Bank of China set the value of the yuan — also known as the renminbi (RMB) — at 6.4943 to US$1.0, weakening 0.59 per cent from the fix of 6.4565 the previous day, according to data from the Foreign Exchange Trade System.

China only allows the yuan to rise or fall two per cent on either side of the daily fix, one of the ways it maintains control over the currency.

Analysts said the weaker fix was in line with strength in the US dollar yesterday, as financial authorities seek to make trading more market oriented.

The dollar rose against most of its peers yesterday as global growth worries swept equity markets and pushed oil prices lower, boosting demand for the safe-haven US currency.

“To maintain a stable currency market, the RMB weakened accordingly,” Liu Xuezhi, an analyst at the Bank of Communications, told AFP.

Today’s cut came after China on Friday raised the yuan-dollar exchange rate by 0.56 per cent from the previous day, the biggest increase in almost 11 years.

“I think China wants to keep the market guessing on its fixings,” Mitul Kotecha, head of Asia FX and rates strategy at Barclays in Singapore, told AFP.

“It remains difficult to forecast on each day,” he said, adding that would help prevent speculation on the currency, a Chinese policy goal.”

The world’s second-largest economy rattled global investors with a surprise devaluation last August, when it guided the normally stable yuan down nearly five per cent over a week.

The yuan was quoted at 6.5000 at 4:30 pm (0830 GMT) today, down 0.40 per cent from yesterday’s close of 6.4743, according to the Foreign Exchange Trade System. — Reuters

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