 "China weakens its currency further")
China weakened its currency, the renminbi, for a second straight day on Wednesday, jolting markets across Asia and raising concerns about the path of the giant economy.
The central bank, the People's Bank of China, set the official rate for the renminbi's exchange at 6.33 to a dollar on Wednesday morning, or 1.6 per cent lower than the previous day.
It was the currency's second-largest one day drop since 1994, when China's modern foreign exchange system began. The largest drop was on Tuesday, when the renminbi was devalued nearly two per cent.
The move sent other Asian currencies lower for a second consecutive day on Wednesday. Stock markets also fell across the region. Hong Kong's main index fell 2.4 per cent while in Japan the Nikkei 225 stock average closed down 1.6 per cent. The sell-off was steeper in Southeast Asia, where the main share index in Singapore fell 2.9 per cent, while Indonesia's Jakarta composite index closed 3.1 per cent lower.
The Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 2.5 percent at midday, while the FTSE 100 index in London was down 1.3 per cent by late morning. The euro rose almost one per cent, to $1.11.
The renminbi fell sharply in offshore markets, where it is freely traded. The offshore renminbi weakened to around 6.5 per dollar in late Asian trading, displaying a record level of bearishness on the Chinese currency, as investors bet on further depreciation to come.
In onshore trading in mainland China, where the renminbi is subject to a daily rise or fall of a maximum two per cent, the currency at one point pushed up against the weak end of the trading band. But it recovered sharply late in the trading day on heavy buying volumes to close at 6.38 per dollar, weaker by one per cent than Tuesday's market close.
The onshore market closing level has taken on new significance since Tuesday, when China's central bank said the closing price would be used as the reference point for setting the renminbi's official exchange rate on the following morning.
Citing unidentified people, Reuters and Bloomberg reported on Wednesday that the central bank intervened in the market, selling dollars and buying renminbi through state banks in order to support the Chinese currency. The reports could not be independently verified. Phone calls to the People's Bank of China's headquarters in Beijing rang unanswered after regular office hours.
In a statement on Wednesday morning, China's central bank reiterated its pledge to give the market a bigger role in setting the exchange rate. But it sought to allay any concerns that the value of the renminbi would continue to spiral downward.
"Based on international and domestic economic and financial conditions, there is currently no basis for a continued depreciation of the renminbi exchange rate," the statement said.
China appears to have two main goals in allowing its closely managed currency to weaken.
For one, it could help offset the country's slowing economy. Exports have been particularly hard hit, contracting by 8 percent in July, and a cheaper renminbi makes China-made goods relatively more affordable for consumers in the United States and Europe.
At the same time, China is also seeking a greater role for its currency on the global stage. In recent months, policy makers have been lobbying the International Monetary Fund to include the renminbi in its basket of global reserve currencies, which includes the dollar, euro, yen and pound.
That means convincing the fund that the renminbi is a freely traded currency. The IMF reacted positively to Tuesday's statement by China's central bank that it would tweak the way it sets the exchange rate, saying in a statement that the move "appears a welcome step as it should allow market forces to have a greater role in determining the exchange rate."
It added, however, "The exact impact will depend on how the new mechanism is implemented in practice."
The central bank, the People's Bank of China, set the official rate for the renminbi's exchange at 6.33 to a dollar on Wednesday morning, or 1.6 per cent lower than the previous day.
It was the currency's second-largest one day drop since 1994, when China's modern foreign exchange system began. The largest drop was on Tuesday, when the renminbi was devalued nearly two per cent.
The move sent other Asian currencies lower for a second consecutive day on Wednesday. Stock markets also fell across the region. Hong Kong's main index fell 2.4 per cent while in Japan the Nikkei 225 stock average closed down 1.6 per cent. The sell-off was steeper in Southeast Asia, where the main share index in Singapore fell 2.9 per cent, while Indonesia's Jakarta composite index closed 3.1 per cent lower.
The Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 2.5 percent at midday, while the FTSE 100 index in London was down 1.3 per cent by late morning. The euro rose almost one per cent, to $1.11.
The renminbi fell sharply in offshore markets, where it is freely traded. The offshore renminbi weakened to around 6.5 per dollar in late Asian trading, displaying a record level of bearishness on the Chinese currency, as investors bet on further depreciation to come.
In onshore trading in mainland China, where the renminbi is subject to a daily rise or fall of a maximum two per cent, the currency at one point pushed up against the weak end of the trading band. But it recovered sharply late in the trading day on heavy buying volumes to close at 6.38 per dollar, weaker by one per cent than Tuesday's market close.
The onshore market closing level has taken on new significance since Tuesday, when China's central bank said the closing price would be used as the reference point for setting the renminbi's official exchange rate on the following morning.
Citing unidentified people, Reuters and Bloomberg reported on Wednesday that the central bank intervened in the market, selling dollars and buying renminbi through state banks in order to support the Chinese currency. The reports could not be independently verified. Phone calls to the People's Bank of China's headquarters in Beijing rang unanswered after regular office hours.
In a statement on Wednesday morning, China's central bank reiterated its pledge to give the market a bigger role in setting the exchange rate. But it sought to allay any concerns that the value of the renminbi would continue to spiral downward.
"Based on international and domestic economic and financial conditions, there is currently no basis for a continued depreciation of the renminbi exchange rate," the statement said.
China appears to have two main goals in allowing its closely managed currency to weaken.
For one, it could help offset the country's slowing economy. Exports have been particularly hard hit, contracting by 8 percent in July, and a cheaper renminbi makes China-made goods relatively more affordable for consumers in the United States and Europe.
At the same time, China is also seeking a greater role for its currency on the global stage. In recent months, policy makers have been lobbying the International Monetary Fund to include the renminbi in its basket of global reserve currencies, which includes the dollar, euro, yen and pound.
That means convincing the fund that the renminbi is a freely traded currency. The IMF reacted positively to Tuesday's statement by China's central bank that it would tweak the way it sets the exchange rate, saying in a statement that the move "appears a welcome step as it should allow market forces to have a greater role in determining the exchange rate."
It added, however, "The exact impact will depend on how the new mechanism is implemented in practice."
© 2015 The New York Times News Service