Bloomberg News

China Yuan Declines Most in Two Months as Growth Prospects Dim

January 16, 2012

Jan. 16 (Bloomberg) -- The yuan dropped the most in more than two months on concern Europe’s credit crisis will slow Asia’s biggest economy.

The People’s Bank of China set the currency’s fixing 0.17 percent weaker at 6.3306 per dollar, the lowest level since Dec. 20, after Standard & Poor’s stripped France of its top credit rating and downgraded eight other euro-area nations. China’s economy expanded 8.7 percent in the fourth quarter from a year earlier, the least since June 2009, according to the median estimate of 26 economists surveyed by Bloomberg before government data due tomorrow.

“The S&P downgrades add to concerns that the European debt crisis could be more serious than what investors expect,” said Stella Lee, president of Success Futures & Foreign Exchange Ltd. in Hong Kong. “The yuan is no longer a one-way bet for appreciation for many.”

The yuan weakened 0.16 percent, the most since Nov. 14, to close at 6.3165 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency is allowed to trade 0.5 percent on either side of the daily fixing.

In Hong Kong’s offshore market, the yuan dropped 0.08 percent to 6.3093. Twelve-month non-deliverable forwards fell 0.16 percent to 6.3169.

The yuan may depreciate about 2 percent against the dollar this year, Fan Jianping, chief economist at China’s State Information Center, said at a forum in Beijing on Jan. 14.

China needs to “think carefully” about whether to make the yuan a reserve currency as the nation is still a middle- income country and its capital markets aren’t sophisticated, Justin Lin, the World Bank’s chief economist, said in Beijing yesterday.

--Editors: Ven Ram, Anil Varma

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

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


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