China fixes yuan at 6-year low against US dollar

12 October 2016

The People's Bank of China, China's central bank, set the Chinese currency's central parity rate below 6.7 to the dollar, the lowest rate in the last six years on Monday, the first day of trading after it joined the IMF`s "special drawing rights" reserve currency basket.

The People`s Bank on Monday lowered the central rate of the yuan by 230 basis points from the previous trading day to 6.7008, its weakest since 2010.

The decision was taken on a day when the dollar was ''quite strong'' and Chinese markets were closed for all of the previous week for national holidays.

Also, the Chinese currency has been declining over the past few months amidst capital outflows from the slowing economy and a stronger dollar.

Monday was the first of trading day in China since the yuan joined the dollar, pound, yen and euro in the IMF`s "special drawing rights" reserve currency basket on 1 October.

Although China has been demanding a bigger role for its currency in global markets and Beijing has repeatedly pledged to liberalise trading in the unit, also known as the renminbi, the central bank has not yet allowed it to rise or fall two per cent on either side of a daily fix on the domestic foreign exchange market.

Analysts expect the yuan to continue to depreciate at a steady, slow pace as the currency's value was increasingly dependent on China's economic fundamentals. The yuan has fallen eight percent against the US dollar over the last two years.

China's economy, the second largest, expanded by 6.9 per cent in 2015 -- its weakest rate in a quarter of a century - and is slowing still.

On the other hand, strong US economic data released in September and talk of the US Fed raising interest rates in December have also caused short-term pressure on the yuan, say analysts.

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