The Chinese yuan fell nearly 1 percent against the US dollar in intraday trade yesterday, its biggest drop in years, in what dealers viewed as a deliberate central bank tactic.
The yuan — also known as the renminbi (RMB) — dropped about 0.9 percent from the previous day’s close in morning trading to 6.1808 against the US dollar, its largest slide since the country ended a fixed peg to the US dollar in 2005, Dow Jones Newswires reported.
The currency has repeatedly fallen in the past two weeks, with many dealers believing the depreciation is a deliberate move by the central bank to target speculative funds betting on continued rises.
China’s financial authorities allow the currency to move up or down 1 percent daily on either side of a mid-point they say is set by polling market makers.
By midday yesterday, the yuan was trading at about 6.1622 to the US dollar, figures from the national foreign exchange market showed, recovering slightly from the low, but still well down on Thursday’s close of 6.1284.
“The intentions of authorities are quite obvious. This is an early sign of a mechanism for two-way fluctuations in the RMB exchange rate,” Industrial Bank in Shanghai analyst Jiang Shu (蔣舒) said.
However, worries over a “bubble” in the property market and the health of the domestic economy were also hurting the yuan, he added.
Yesterday’s sharp fall came despite the China Foreign Exchange Trading System, the national foreign exchange market, announcing a fix of 6.1214 yuan on the day, stronger than Thursday’s mark of 6.1224.
China’s rulers keep a tight grip on the yuan, as one of their key tools to control the economy, and due to worries about unpredictable financial inflows or outflows.
The government’s State Administration of Foreign Exchange, which advises the People’s Bank of China on policy, said on Wednesday that the sudden depreciation in the yuan’s value was normal and advised there could be more two-way fluctuations in trading.