Update | China’s central bank devalues the yuan 2 per cent – biggest drop since 1994 - in wake of stock market crash

China’s central bank devalued the yuan on Tuesday, setting the daily mid point yuan trading price a record 1.86 per cent weaker at 6.2298 to the US dollar in the clearest sign yet the government may let the currency soften after worsening economic data and a stuttering stock market.

Foreign exchange markets reacted immediately with the onshore yuan trading 1.41 per cent weaker at 6.2970 against the greenback.

“The international economic and financial conditions are very complex. The US dollar is strengthening, while the Euro and Japanese Yen are weakening. Emerging market and commodities currencies are facing downward pressure, and we are seeing increasing volatilities in international capital flow,” a spokesman for China’s central bank, the People’s Bank of China, told the media Tuesday morning.

The yuan had “deviated the from market rate to a large extent and with a larger duration, which, to some extent, has undermined the market benchmark status,” the spokesman said.

The onshore yuan trading band is tightly controlled. The People’s Bank of China set a daily mid point around which the currency can trade up or down 2 per cent each day.