PBOC says cuts related to July’s rise in yuan loans

China has set the guiding rate for its yuan currency lower for a third consecutive day.


Chinese central bank officials on Thursday offered a rare public defense after their unexpected move this week to devalue the yuan, saying the currency will stabilize and eventually resume its climb.

The PBOC set its guidance rate at 6.4010 per dollar prior to the market opening, weaker than the previous fix of 6.3306.

At 10.50 am, 30-share benchmark S&P BSE Sensex was at 27,672.55, up 160.29 points, or 0.6 percent over previous close.

The PBOC also said that it would monitor “abnormal” cross-border flows after the devaluation raised fears that investors would seek to pull capital out of China in anticipation of further falls in the currency. Rather than following the market down, the PBOC appears to be leading it. The value of the yuan has dropped by nearly 3.5%, and it could drop further.

The current exchange rate is now more consistent with economic fundamentals, and there is no need to adjust it to boost exports, PBOC Deputy Governor Yi Gang said at Thursday’s press conference.

Meanwhile, the World Gold Council (WGC) reported today that global gold demand in the second quarter plunged by 12 percent year-on-year to a six-year low of 914.9 tonnes. The yuan’s offshore rate fell to a record 2.1 per cent discount to the onshore level on Wednesday, before Thursday’s rebound narrowed the gap to 0.4 per cent.

“This move may also trigger a new currency war” if central banks respond by trying to depress their country’s own exchange rates, said Nicholas Teo of CMC Markets in a report.

“We’re kind of hoping that we can go back to normal market conditions and focus on U.S. data and what that means for the Fed“, said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.

The US unit also strengthened against the Australian dollar, which is often seen as a proxy for China’s yuan, with the Aussie at 72.55 US cents from 73.47 cents on Tuesday.

The move sent Asia-Pacific currencies plummeting, pushing the Malaysian ringgit to 17-year lows, on fears the cut could hurt other regional economies and spark a race to the bottom by central banks in a bid to keep their exports competitive.


“This is like a double whammy with China allowing its currency to weaken”, said Wee-Ming Ting, the head of Asian fixed income in Singapore at Pictet Asset Management, which oversees $US19 billion of emerging-market debt.

US stocks edge higher as China's currency stabilizes