Shanghai / AFP
China’s yuan currency surged more than one percent against the dollar on Monday, its biggest rise in over a decade, after the central bank chief said there was no reason the beleaguered unit should fall further.
The yuan stood at 6.4944 to $1.0 at 0830 GMT, up 1.14 percent from February 5 — the last trading day before a week-long holiday – according to the national foreign exchange market.
Bloomberg News said it was the biggest one-day advance since 2005.
In an interview with Caixin magazine published over the weekend, the People’s Bank of China (PBoC) head Zhou Xiaochuan blamed foreign speculators for volatility in the yuan and said there was no basis for it to fall further.
“There is no foundation for continued depreciation,” he told the magazine, according to a transcript posted on the bank’s website. The Chinese economy grew 6.9 percent in 2015, the slowest rate since 1990. Capital has been flowing out of the country on worries about the flagging growth, causing the currency to weaken — which in turn drives withdrawals.
The central bank signalled a preference for a stronger currency on Monday by fixing its value higher by the biggest margin for more than three months. China is seeking a greater role in global commerce for yuan, but limits the currency to rising or falling two percent on either side of the daily fix.
The PBoC set the yuan at 6.5118 to $1.0 on Monday, strengthening 0.30 percent from the fix on February 5, according to data from the China Foreign Exchange Trade System. In January Beijing guided the unit down by 1.4 percent by setting its daily fix lower for eight consecutive sessions — a move that raised worries of a creeping devaluation.
In mid-August China adjusted the yuan down nearly five percent over a week, spurring fears it was pursuing a currency war to help boost its flagging exports. Exports dropped 11.2 percent year-on-year to $177.5 billion in dollar terms in January, Customs said on Monday, as feeble external demand dragged on the world’s second-largest economy.
Analysts said the yuan was still likely to depreciate more this year.
“His (Zhou’s) comments signal against the intention for a sharp one-off devaluation, but leave scope for possible further round(s) of gradual depreciation,” Goldman Sachs said in a research note.
UBS forecast the yuan would weaken to 6.8 to $1.0 by the end of the year but the movement would be gradual.
“The probability of China holding (US dollar/Chinese yuan) stable in the next few months is greater than a significant depreciation or a one-off adjustment,” it said.