The People's Bank of China is willing to allow the yuan CNYUSD, -0.1385% to fall to 6.8 per U.S dollar in 2016, Reuters reported Thursday, citing policy sources. China's yuan sank to a six-month low against the dollar in offshore trade on Thursday and the Australian dollar fell almost one percent after the report.
China's central bank is aiming to help the country's economy, which has been hit by weak exports and economic growth. Analysts opine that the central bank will aim to ensure a gradual decline to avoid triggering the sort of capital outflows that shook the economy in January or criticism from trading partners.
The report comes after Premier Li Keqiang reiterated Monday that the government is capable of keeping the yuan at a reasonable, balanced level, and there’s no basis for long-term devaluation. The yuan snapped back in less than an hour as traders questioned whether the central bank has shifted its policy stance.
“The cumulative easing of 165 basis points in the 1-year lending rate since November 2014 has had the desired impact, with new loan growth expanding significantly since mid-2015. CPI rose 2.0 percent y/y in May, the lowest since January and well below the targeted 3 percent. The economy continues to slow at a manageable pace, but further easing is possible this year if the slowdown gathers too much pace,” says Research Team at BBH.
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