China devalued
the yuan on Tuesday after a run of poor economic data, guiding the
currency to its lowest point in almost three years in a move it billed
as free-market reform.
The
central bank described it as a "one-off depreciation" of nearly 2
percent, based on a new way of managing the exchange rate that better
reflected market forces, but economists said the timing suggested it was
also aimed at helping exporters.
Data released at the weekend showed that China's exports tumbled 8.3 percent in July, hit by weaker demand from three huge trading partners - Europe, the United States and Japan.
"We think the move is aimed to ease pressure on China's weak exports performance in recent months and relieve imported deflation pressure," said Guo Lei, economist at Founder Securities in Shanghai.
The world's second-largest economy has slowed markedly this year and some economists believe it is expanding at much less than the official 2015 target of 7 percent. Even if it meets the target, growth will come in at a 25-year low.
"Since China's trade in goods continues to post relatively large surpluses, the yuan's real effective exchange rate is still relatively strong versus various global currencies, and is deviating from market expectations," the central bank said.
"Therefore, it is necessary to further improve the yuan's midpoint pricing to meet the needs of the market." China manages the exchange rate CNY=CFXS
through an official midpoint, from which it can vary 2 percent each
day. On Tuesday, the People's Bank of China (PBOC) said it was now
basing the midpoint CNY=SAEC on market makers' quotes and the previous day's closing price.
The bank then weakened the midpoint to 6.2298 per dollar on Tuesday morning, compared with Monday's 6.1162 fix - the biggest-ever one-day adjustment to the midpoint.
In the past, the central bank set the midpoint using formula based on a basket of currencies, but the methodology has never been publicized and many believed that in practice the midpoint was frequently used as a way to bend the market to policy goals.
Under the new method, market forces would have more ability to take the yuan lower in the weeks ahead, raising the possibility of competitive currency depreciations world-wide.
However, Beijing would still have a large say in setting the new midpoints, given the heavy influence of state banks in daily trade of the yuan.
Data released at the weekend showed that China's exports tumbled 8.3 percent in July, hit by weaker demand from three huge trading partners - Europe, the United States and Japan.
"We think the move is aimed to ease pressure on China's weak exports performance in recent months and relieve imported deflation pressure," said Guo Lei, economist at Founder Securities in Shanghai.
The world's second-largest economy has slowed markedly this year and some economists believe it is expanding at much less than the official 2015 target of 7 percent. Even if it meets the target, growth will come in at a 25-year low.
"Since China's trade in goods continues to post relatively large surpluses, the yuan's real effective exchange rate is still relatively strong versus various global currencies, and is deviating from market expectations," the central bank said.
The bank then weakened the midpoint to 6.2298 per dollar on Tuesday morning, compared with Monday's 6.1162 fix - the biggest-ever one-day adjustment to the midpoint.
In the past, the central bank set the midpoint using formula based on a basket of currencies, but the methodology has never been publicized and many believed that in practice the midpoint was frequently used as a way to bend the market to policy goals.
Under the new method, market forces would have more ability to take the yuan lower in the weeks ahead, raising the possibility of competitive currency depreciations world-wide.
However, Beijing would still have a large say in setting the new midpoints, given the heavy influence of state banks in daily trade of the yuan.
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