HONG
KONG — China weakened its currency, the renminbi, for a second straight
day on Wednesday, jolting markets across Asia and raising concerns
about the path of the giant economy.
The
central bank, the People’s Bank of China, set the official rate for the
renminbi’s exchange at 6.33 per dollar on Wednesday morning, or 1.6
percent lower than the previous day.
It
was the currency’s second-largest one day drop since 1994, when China’s
modern foreign exchange system began. The largest drop was on Tuesday,
when the renminbi was devalued nearly 2 percent.
The
move sent other Asian currencies lower for a second consecutive day on
Wednesday. Stock markets also fell across the region. Hong Kong’s main
index fell 2.4 percent while in Japan the Nikkei 225 stock average
closed down 1.6 percent. The sell-off was steeper in Southeast Asia,
where the main share index in Singapore fell 2.9 percent, while
Indonesia’s Jakarta composite index closed 3.1 percent lower.
The
Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 2.5
percent at midday, while the FTSE 100 index in London was down 1.3
percent by late morning. The euro rose almost 1 percent, to $1.11.
The
renminbi fell sharply in offshore markets, where it is freely traded.
The offshore renminbi weakened to around 6.5 per dollar in late Asian
trading, displaying a record level of bearishness on the Chinese
currency, as investors bet on further depreciation to come.
In
onshore trading in mainland China, where the renminbi is subject to a
daily rise or fall of a maximum 2 percent, the currency at one point
pushed up against the weak end of the trading band. But it recovered
sharply late in the trading day on heavy buying volumes to close at 6.38
per dollar, weaker by 1 percent than Tuesday’s market close.
The
onshore market closing level has taken on new significance since
Tuesday, when China’s central bank said the closing price would be used
as the reference point for setting the renminbi’s official exchange rate
on the following morning.
Citing
unidentified people, Reuters and Bloomberg reported on Wednesday that
the central bank intervened in the market, selling dollars and buying
renminbi through state banks in order to support the Chinese currency.
The reports could not be independently verified. Phone calls to the
People’s Bank of China’s headquarters in Beijing rang unanswered after
regular office hours.
In
a statement on Wednesday morning, China’s central bank reiterated its
pledge to give the market a bigger role in setting the exchange rate.
But it sought to allay any concerns that the value of the renminbi would
continue to spiral downward.
“Based
on international and domestic economic and financial conditions, there
is currently no basis for a continued depreciation of the renminbi
exchange rate,” the statement said.
China appears to have two main goals in allowing its closely managed currency to weaken.
For
one, it could help offset the country’s slowing economy. Exports have
been particularly hard hit, contracting by 8 percent in July, and a
cheaper renminbi makes China-made goods relatively more affordable for
consumers in the United States and Europe.
At
the same time, China is also seeking a greater role for its currency on
the global stage. In recent months, policy makers have been lobbying
the International Monetary Fund to include the renminbi in its basket of global reserve currencies, which includes the dollar, euro, yen and pound.
That means convincing the fund that the renminbi is a freely traded currency.
The
I.M.F. reacted positively to Tuesday’s statement by China’s central
bank that it would tweak the way it sets the exchange rate, saying in a statement
that the move “appears a welcome step as it should allow market forces
to have a greater role in determining the exchange rate.”
It added, however, “The exact impact will depend on how the new mechanism is implemented in practice.”
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