US lawmakers quick to criticize China on currency drop

The move was carried out to make the yuan more market-oriented. Malaysia’s ringgit and the Indonesia rupiah plunged to their lowest levels in 17 years.

China is exporting “deflationary pressure”, said Morgan Stanley analysts Hans Redeker, Ian Stannard and Sheena Shah in a report.

But Nicholas Lardy, an expert on China’s economy at the Peterson Institute, said it was “preposterous” to suggest that China has suddenly taken the move to stoke growth in an economy that has been weakening for three years.

While the RBI with its forex reserves will try its best to contain the downfall of rupee like it did on Wednesday, a volatile rupee can spell trouble for the bank which may have to intervene in markets time and again to keep the currency from depreciating too fast. And the Chinese devaluation might well deter the Fed from any hasty interest rate rise.

The foreign exchange regulator, a unit of the central bank, recently issued a notice ordering its sub-bureaus to strengthen supervision so as to avoid major foreign exchange purchases and to conduct “window guidance”, or administrative advice, to banks in case of necessity, the sources said. It said the fluctuations would “converge to a reasonably stable zone” following a “short period of adaptation”.

The dollar eased against most Asia-Pacific currencies, sliding to Sg$1.3971 from Sg$1.4135 on Wednesday, to Tw$32.20 from Tw$32.50, to 13,766 Indonesian rupiah from to 13,825 rupiah, and to 35.18 Thai baht from 35.55 baht.

Data released by the government for June showed exports fell for seventh straight month contracting 15.8 per cent year-on-year.

If it sets Friday’s mid-point below Thursday’s level, at 6.4010 to the dollar, it could fan speculation that China wants a deeper fall in the yuan to spur exports to support the economy, said some analysts.

The central bank said on Thursday there was no reason for the yuan to fall further given the country’s strong economic fundamentals.

The general manager for Japan sales of Anhui Garments Import & Export Co. said the company was waiting for exchange rates to stabilize, the newspaper China Business News reported.

China’s economic growth has slowed to an annual rate of just 7 percent, which is healthy for most countries but far below the previous decade’s double-digit pace.

“If true it is an utterly baffling move, one that reflects a worryingly lack of clarity and/or sense in the decision making process”.

The cuts roiled Asian shares Wednesday, with Hong Kong and Tokyo all losing more than one percent, while oil continued its slide after hitting a more than six-year low in New York. The Fund’s board is due to consider that recommendation in October. “Any development in the Chinese market, such as foreign exchange rates, taxes and crackdowns on corruption, are likely to affect their global sales and subsequently their marketing and pricing strategies”, Zhou said.

“However, suggestions that China is engaging in a currency war could undermine the political goodwill towards it that will ultimately decide whether or not it is permitted to join”.