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Yuan weakens against dollar for 4th straight day

(Xinhua)
Updated: 2008-12-02 14:43

China's currency, the Renminbi yuan, fell for the fourth straight trading day against the US dollar after China's central bank announced the fourth interest rate cut since mid-September.

Special coverage: Interest Rate Cut

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The yuan's central parity rate announced by the China Foreign Exchange Trading System was 6.8527 yuan to one US dollar on Tuesday, compared with 6.8505 yuan on Monday.

The central parity of yuan against the US dollar is based on a weighted average of enquired prices from all market makers before the opening of the market in each business day.

The central parity rate of the yuan lost 156 basis points against the US dollar on Monday from the previous trading day, reaching a new low since July 10, according to Tuesday's China Securities Journal.

Last week, the PBOC said it would cut the benchmark one-year yuan lending rate to 5.58 percent from 6.66 percent and the one-year yuan deposit rate to 2.52 percent from 3.60 percent starting Thursday.

The yuan closed at 6.8848 to the US dollar on Monday, meeting the daily limit of 0.5 percent from Tuesday's central parity rate. It marks the biggest loss since the yuan became unfixed from the dollar in July 2005.

Trading in the forex market is allowed to fluctuate within a band of 0.5 percent on either side of the midpoint.

Ou Minggang, Director of the International Finance Research Center under China Foreign Affairs University, attributed the recent depreciation to the interest cut, adding that to some extent this would facilitate the country's slowing exports.

The world's fastest growing economy saw its export expansion pace in the first three quarters slowed by 4.8 percentage points year-on-year, growing by 22.3 percent to 1.07 trillion US dollars.

Analysts with the Shanghai-based Bank of Communications said the yuan might further depreciate as the country's manufactured products faced a "grim" export situation.

China's Purchasing Managers' Index (PMI), of the manufacturing sector, released Monday, dropped to 38.8 percent in November, down 5.8 percentage points from October. The index, measuring new orders, dropped to 32.3 percent in November, down 9.4 percentage points from October.

It was the PMI's lowest point since the China Federation of Logistics and Purchasing initiated the survey in 2005. A reading above 50 percent suggests expansion, while one below 50 percent signals economic slowdown.

Wang Qing, Morgan Stanley's Greater China chief economist, said there was "little possibility" that the yuan would continue dropping heavily, as China's trade surplus in October reached a monthly high of 35.24 billion U.S. dollars and the country had two trillion US dollars in foreign exchange reserves.