Yuan fixing tumbles to 3-week low amid capital flight worries
China’s January foreign reserves unexpectedly fall below US$3 trillion for first time in six years
The Chinese yuan weakened on Wednesday in the offshore market following the lowest fixing in more than three weeks by the People’s Bank of China (PBOC), after the country’s January foreign reserves unexpectedly fell below US$3 trillion for first time in six years, triggering concerns about sustained capital flight.
The offshore yuan softened for a second day, down 0.02 per cent or 16 basis points to 6.8368 in the morning trade. However, the currency strengthened in the onshore market, up 0.02 per cent or 14 basis points to 6.8839.
Earlier in the day, the PBOC set the yuan’s mid-point rate sharply lower at 6.8849 per US dollar, down 245 basis points from the previous reference rate. China allows the yuan to trade within 2 per cent of the daily mid-point rate.
The central bank also halted its open market operation for a fourth straight day, in a sign of continued tightening policy bias.
Despite their (Chinese authorities’) heavy-handed interventions, the reserve data clearly signals greater than anticipated capital flight and highlights the ineffectiveness of current policies
The weaker fixing by PBOC came after data showed China’s January foreign reserves dropped to US$2.9982 trillion, the first time in six years below the US$3 trillion level.