China's yuan slides to near one-year low as economic risks mount

Wed Mar 19, 2014 7:28am EDT
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By Michelle Chen

HONG KONG (Reuters) - China's yuan fell beyond 6.20 to the dollar on Wednesday for the first time since April last year amid market speculation the central bank will keep the currency weak as economic growth slows.

The yuan has tumbled 0.8 percent so far this week after the People's Bank of China (PBOC) on Saturday doubled the daily trading band allowed for the currency to 2 percent from the mid-point that it sets each day.

Spot yuan briefly fell as low as 6.2040 in early afternoon trade before ending at 6.1965. That marked a 0.07 percent loss on the day from Tuesday's close, and a fall of 1 percent from the mid-point.

"We see risks of further near-term yuan weakness, but do not expect this to extend beyond the second quarter. It is not in the PBOC's interests to have a sustained depreciation in the currency, as this will increase financial stability risks," economists at ANZ said in a research note.

Other analysts agreed that allowing the yuan to weaken too far, too fast would only increase the stresses on Chinese companies and the broader economy.

ANZ expects the currency to return to a modest appreciation trend in the second half, but still end the year weaker for the first time since Beijing unshackled it from its fixed exchange rate to the dollar in 2005.

The currency has risen more than 30 percent since then, attracting a growing number of global investors, big and small, many of whom have come to see it as a one-way appreciation bet.

ANZ like many other market watchers has now dialed back expectations for the yuan, revising its year-end yuan forecast to 6.08 from 5.98.   Continued...

A clerk arranges bundles of 100 Chinese yuan banknotes at a branch of China Merchants Bank in Hefei, Anhui province March 17, 2014. REUTERS/Stringer