China central bank tries to soothe markets, says no reason for yuan to fall further

Thu Aug 13, 2015 8:50am EDT
 
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By Kevin Yao and Pete Sweeney

BEIJING/SHANGHAI (Reuters) - China's central bank said on Thursday there was no reason for the yuan to fall further given the country's strong economic fundamentals, helping to restore calm to jittery global markets after it devalued the currency earlier in the week.

As the yuan slid for a third straight day, the People's Bank of China (PBOC) said the strong economic environment, sustained trade surplus, sound fiscal position and deep foreign exchange reserves provided "strong support" for the exchange rate CNY=CFXS.

China's decision to devalue the currency on Tuesday by pushing its official guidance rate down 2 percent sparked fears of a "currency war" and roiled global financial markets, dragging other Asian currencies to multi-year lows.

It also drew accusations from U.S. politicians that Beijing was unfairly supporting its exporters.

The PBOC said at the time that the move was a one-off depreciation, but sources involved in the Chinese policy-making process told Reuters that some powerful voices within government were pushing for the yuan to go still lower, suggesting pressure for an overall devaluation of almost 10 percent.

PBOC Vice-governor Yi Gang said it was nonsense to believe that government expected the yuan to fall that far.

Earlier on Thursday, the PBOC said there was no basis for continued depreciation of the yuan.

However, even if the central bank succeeds in putting a floor under the yuan for now, poor July economic data and expectations of more interest rate cuts later in the year are likely to fuel expectations that authorities could let it weaken further.   Continued...

 
A customer holds Chinese Yuan notes as she pays for pork at a market in Beijing, August 12, 2015. REUTERS/Jason Lee