You are here

China's yuan opens weaker after surprise rate cut

chinhk12.jpg
China's yuan opened at 6.1280 per dollar on Monday, softening slightly from Friday's close after the central bank caught markets off-guard by cutting benchmark lending rates by 40 basis points.

[SHANGHAI] China's yuan opened at 6.1280 per dollar on Monday, softening slightly from Friday's close after the central bank caught markets off-guard by cutting benchmark lending rates by 40 basis points.

The People's Bank of China set the midpoint rate weaker at 6.1420 per dollar prior to market open, compared to 6.1387 per dollar at the previous fix. The spot rate is currently allowed to trade 2 per cent above or below the midpoint.

The offshore yuan was trading at 6.1353 per dollar after the opening of onshore markets, 0.1 per cent softer than the onshore version, suggesting that foreign investors expect further depreciation going forward.

Economists believe the interest rate cut, which came after mainland financial markets had closed on Friday, is bearish for the yuan in the medium term.

Although the currency has been rallying since May after slipping sharply earlier in the year, weakness in the domestic economy, easier monetary conditions, a strengthening dollar and softer neighboring currencies are all seen putting downward pressure on the yuan over the coming months.

The yuan is down 1.24 per cent in the year to date, and few believe that regulators will allow it to rise much further given concerns that China's economy might be weaker than originally thought, a factor underscored by the surprise rate adjustment.

REUTERS