China Devalues Currency For Third Day

“The central bank has the ability to keep the renminbi basically stable at a reasonable and balanced level”, she said.

The PBOC reaffirmed earlier remarks that there was no basis for a sustained depreciation in the value of the yuan and quashed rumours the currency could be devalued by as much as 10% as “groundless”, Reuters said.

The renminbi devaluation is worrisome, not because it represents an unwelcome move by the Chinese government, rather because it reflects a weakness in the world’s second-largest economy at a time when the world economy itself is showing few signs of strength.

Asian markets stabilized Friday, with some even rebounding, as China’s yuan traded slightly stronger after its steep devaluation earlier in the week.

Alarmed by a slew of weak economic data, the central bank unexpectedly devalued the yuan by nearly 2 percent on Tuesday, sparking turbulence on the currency and stock markets.

“We take out the highest and lowest rate, and the weighted average of the rest samples is the central parity rate we publish everyday”, said Yi Gang, Deputy Governor, People’s Bank of China.

China cut the reference rate for its currency for the third consecutive day on Thursday, following this week’s surprise devaluation of the yuan that unsettled global financial markets.

“For those who feel like China’s exchange rate is an issue, they might not like the result if China suddenly started allowing those market influences to be felt before they had fully reformed the economy behind it”, he said. Japan’s Nikkei 225 rose 1 percent to 20,595.55 and South Korea’s Kospi gained 0.4 percent to 1,983.46.

Analysts viewed the move as a way for China to both boost exports by making its goods cheaper overseas and push economic reforms as it seeks to become one of the reserve currencies in the worldwide Monetary Fund’s SDR (special drawing rights) group. Hong Kong’s Hang Seng climbed 0.4 percent to 24,018.80 and the Shanghai Composite Index in mainland China added 1.8 percent to 3,954.56 after briefly slipping into negative territory.

The currency’s fall comes after the PBOC adjusted the exchange rate formation mechanism on Tuesday, a move designed to better reflect market development in the exchange rate of the yuan against the U.S. dollar.

The yuan’s fall could complicate matters for the European Central Bank in the quarters ahead, Standard & Poor’s economists said in a report Friday.

Yi said the central bank “no longer regularly intervenes in the exchange rate but will continue to manage it, especially when volatility exceeds a tolerable range, to let market forces decide the yuan’s valuation”.

The West is crying foul and accusing Beijing of waging a currency war through direct intervention in the market.