-Ma Jun, PBoC economist
Beijing lowered the reference rate for the Yuan for the third consecutive day, after the unexpected devaluation of the currency this week shocked global financial markets. On Thursday the People's Bank of China set the USD/CNY fix at 6.4010, up 1.1% from the fix of 6.3306 a day earlier. Thursday is the third consecutive day that the PBoC has devalued its currency, after beginning the new regime on Tuesday when the Yuan was devalued by 1.9%. The PBoC sets the reference rate for the USD/CNY every day, and allows the exchange rate to fluctuate a maximum of 2% above or below that value on any given day. The offshore yuan (CNH) often trades at a different value to the onshore yuan (CNY), but policy makers have been attempting in recent days to close the gap.
The cuts have sparked concerns over a "currency war" as other countries feel pressure to devalue and raising questions about the health of the world's second biggest economy, where growth is already slowing. Analysts viewed the move as a way for China to both underpin exports by making its goods cheaper abroad and push economic reforms as it seeks to become one of the reserve currencies in the International Monetary Fund's SDR group. However, the central bank dismissed the possibility that China was seeking to fuel a currency war, saying there was no need as exports were expected to increase in the second half of the year.
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