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Yuan at 3-Year Low

Yuan at 3-Year Low
Yuan at 3-Year Low

The yuan dropped to its lowest level against the dollar in three years after China's central bank devalued the currency Tuesday to aid a slowing economy.

The People's Bank of China adjusted its daily reference exchange rate by 1.9%, setting it at 6.22 to the US dollar, dpa reported.

After the unexpected rate cut, the yuan dropped further in value to 6.32 to the dollar in afternoon trading in Shanghai.

It was the weakest the currency had been since 2012 and the biggest one-day slide against the dollar since China unified official and market exchange rates in 1994.

The devaluation was a one-time adjustment, the central bank said in an announcement on its website.

"The market needs time to adapt after the improvements to the middle rate ... the central bank will closely monitor the market and work to stabilize market expectations," the bank said in an accompanying commentary.

The central bank strictly controls yuan trading. The currency can trade up or down by a maximum of 2% from the bank's daily mid-point reference rate.

China has also been trying to keep the exchange rate stable as part of a push to gain official reserve status at the International Monetary Fund, analysts say.

The central bank devalued "in order to relieve pressure on exports," said Liu Yuanchun, professor and vice dean of the economics department of Renmin University in Beijing, following weak trade figures released over the weekend.

The country's foreign trade shrank by more than 7% in the first seven months of the year, official figures showed Saturday.

"Other emerging economies are all devaluing," Liu said. "The range of fluctuation is certainly big, but it won't impact the economy too much."

More loosening and stimulus measures are expected in coming months as China struggles to meet its lowered growth target for 2015 of about 7% amid sluggish investment growth and falling exports.

China's GDP grew 7.4% in 2014, the weakest annual expansion in 24 years. A string of economic indicators suggest persistent weakness.

 

Financialtribune.com