Bloomberg News

Yuan Drops to One-Month Low as PBOC Shifts Policy to Spur Growth

November 24, 2011

Nov. 24 (Bloomberg) -- The yuan fell to a one-month low after the central bank’s loosening of reserve requirements for some rural lenders fueled speculation policy makers’ priority is to sustain economic growth rather than fight inflation.

Non-deliverable forwards declined for a fifth day, the longest losing streak in 11 weeks, after the People’s Bank of China set its daily reference rate for the currency at the weakest level since Oct. 21. The monetary authority lowered reserve-requirement ratios for more than 20 rural cooperative banks by half a percentage point, its Hangzhou branch said in an e-mailed statement yesterday. Manufacturing may contract this month by the most since 2009, according to a preliminary purchasing managers index reported yesterday.

“The fixing today was interesting and it’s quite a significant signal from the PBOC,” said Robert Minikin, a senior currency strategist at Standard Chartered Plc in Hong Kong. “We have to be prepared for more volatility. The focus of the authorities is more towards supporting growth. The argument for yuan appreciation, based on the inflation fight, is dead.”

The yuan fell 0.14 percent to 6.3680 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It touched 6.3731 earlier, the weakest level since Oct. 24. The currency is allowed to trade up to 0.5 percent on either side of the daily reference rate, which was cut 0.11 percent to 6.3570 today.

‘Top Priority’

“The global economic situation is still grave at the current stage, therefore to ensure a recovery is a top priority,” Vice Premier Wang Qishan said Nov. 21 at the 22nd U.S.-China Joint Commission on Commerce and Trade meeting in Chengdu. “An unbalanced recovery is better than a balanced recession.”

China should increase the currency’s flexibility, the central bank-run Financial News reported today, citing unidentified experts. An “appropriate” widening of the trading band would better deal with excess short-term inflows, the newspaper said.

Twelve-month non-deliverable yuan forwards fell 0.16 percent to 6.3905 per dollar, a 0.4 percent discount to the onshore spot rate. In Hong Kong’s offshore market, the yuan declined 0.08 percent to 6.3925.

--Editors: James Regan, Simon Harvey

To contact the reporter on this story: Kyoungwha Kim in Beijing at kkim19@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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