New | PBOC reassurances see yuan stabilise after three-day rout

After declining for three consecutive days following Beijing's shock devaluation, the yuan strengthened on Friday following soothing words from China's central bank that suggested the authorities are not planning any further devaluation.

A day after People's Bank of China deputy governor Yi Gang said the authorities would act "when the market's volatility is excessive", the central bank raised the yuan's reference rate for the first time since Tuesday's devaluation.

Onshore yuan (CNY) gained 0.11 per cent, or 70 basis points, to finish the week at 6.3912 against the US dollar, while offshore yuan strengthened 0.4 per cent, or 260 basis points, to 6.4378.

Beijing this week introduced a new market-driven currency mechanism in which the daily reference point - the midpoint of the yuan's exchange rate with the dollar from which it can rise or fall 2 per cent - is based on the previous day's close, That has led onshore yuan to lose 2.9 per cent, or 1,815 basis points, over the past week. Offshore yuan has lost 3.6 per cent, or 2,248 basis points.

Some regional currencies also fell this week, triggering concerns about a fresh currency war in Asia. Since Tuesday, both the Singapore dollar and the South Korean won have lost 1.5 per cent, the Taiwan dollar is down 1.6 per cent while the Australian dollar has lost 0.4 per cent.

Some fund managers and analysts believe although there could be downward pressure on the exchange rate this year, a sharp depreciation is unlikely.