Chinese yuan continues weakening against USD

Beijing, Jan 5 (IANS) Further weakening of the Chinese yuan against the US dollar on Tuesday does not presage substantial declines in 2016, experts and officials have said.

The central parity rate of the yuan against the dollar weakened by 137 basis points to 6.5169 on Tuesday, the lowest level in more than four years, as bad news about manufacturing activity unnerved market players, Xinhua news agency reported.

The Caixin General China Manufacturing Purchasing Managers’ Index (PMI),released on Monday, edged down to 48.2 in December from 48.6 in November, the 10th straight month below the 50-point level which demarcates contraction and expansion.

The yuan has been weakening since the People’s Bank of China (PBOC), the central bank, revamped the foreign exchange mechanism last August to make the rate more market-based.

The yuan has been losing ground as the Chinese economy hit its slowest pace in a quarter of a century. Meanwhile, the US raised interest rates in December and more rises are expected in 2016.

There is no basis for yuan to depreciate as China remains one of the the world’s fastest growing major economies, said Guan Qingyou, a researcher with Minsheng Securities, who expects the yuan to fall a little against the US dollar while staying stable against a basket of currencies.

China is capable of keeping the yuan’s exchange rate at a “reasonable” level and sees no basis for continued depreciation, the People’s Bank of China (PBOC) Vice Governor Yi Gang said, citing high-medium growth and foreign exchange reserves as major factors underpinning the currency.

Yi made the statement hours after the International Monetary Fund announced that the yuan is eligible for joining its Special Drawing Rights (SDR) basket, alongside the dollar, the euro, pound and yen.

“In case of drastic fluctuation or abnormality in international balance of payments and cross-border capital flow, the central bank will not hesitate to intervene,” Yi added.

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