Yuan devaluation rerun jolts markets, deepens fears China may further weaken currency
Beijing insists move is aimed at making the currency more market-oriented as tremors from shock policy change felt across the world
Beijing lowered the yuan again yesterday after a shock devaluation on Tuesday, roiling markets across the world and deepening fears of even more weakening of the currency.
The People's Bank of China (PBOC) cut the yuan's daily reference rate against the US dollar - or the midpoint around which it is allowed to rise or fall 2 per cent - by 1.62 per cent to 6.3306 yuan. This came after the central bank on Tuesday first surprised the markets by lowering the midpoint by 1.87 per cent.
The back-to-back devaluations have meant the yuan has lost nearly 4 per cent in two days. The currency plunged up to 2 per in Shanghai, before recouping about half the loss in the final 15 minutes of trading, raising suspicions that the central bank might have intervened to ensure a better close for today's rate fix.
Under a new currency mechanism to give market forces a greater play in determining the level of the yuan, Beijing has said the previous day's close, foreign exchange demand and supply, and the rates of other major currencies will from now on decide the daily rate around which the yuan can trade.
Two straight days of devaluation have got markets on the edge as many analysts are expecting more to come.
"There remains a large room for RMB's depreciation," ANZ said in a report.
Wang Yang, a Guotai Junan Securities analyst, agreed that the "one-off" devaluation, as Beijing claims it to be, has set in motion a fresh round of yuan depreciation. "But it will be gradual."
