China’s central bank has devalued the yuan to its lowest rate against the US dollar in almost three years and its biggest one-day drop since 1994 when China aligned its official and market rates.
The lender cut its daily reference rate 1.9 percent calling the change “ a one-off depreciation”.
The move comes as policy makers stepped up efforts to support exporters on the back of data earlier this week which showed exports tumbled by 8.3 percent in July. The lender said its fixing will become more aligned with supply and demand.
“As a result of the strong yuan, because it is linked to the US dollar, Chinese exports have become very expensive. There was a study that in 10 years, China’s cost increased by eight and a half times, so China’s manufacturing cost is only marginally lower than the US,” said Francis Lun CEO, GEO Securities Limited
The move could help spur growth in the world’s second largest economy which is growing at its slowest rate for six years.
Some economists said the the devaluation was also designed to support Beijing’s push for the yuan to be included in a basket of reserve currencies known as Special Drawing Rights which are used by the International Monetary Fund to lend money to sovereign borrowers.