Yuan depreciation of 3% considered as “stable”
April 25, 2016 Category Finance, Weekly
A depreciation of nearly 3% in the yuan against a basket of foreign currencies is considered a “stable” performance, the State Administration of Foreign Exchange (SAFE) said. SAFE is taking a tolerant attitude, with the yuan being allowed to fluctuate within an acceptable range. The yuan has weakened by 2.8% against the basket, which comprises 13 currencies referenced by the central bank. In the first quarter, the yuan appreciated against the U.S. dollar but fell against the basket. Its nominal effective exchange rate fell by 2.3% against 40 currencies defined by the Bank for International Settlement (BIS). The People’s Bank of China (PBOC) in recent months has moved between depegging the yuan to the dollar and repegging it to the U.S. currency when market confidence in the yuan slumped. Tom Orlik, Economist at Bloomberg said: “The worst fears of a cascading capital flight have come to pass. There appears to have been a repegging of the yuan against the dollar since mid-January, which reduces the incentive for households to shift funds out of China’s currency,” the China Daily reports.
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