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[BEIJING] China weakened the yuan's daily reference rate by a record 1.9 per cent, allowing depreciation to combat a slump in exports.
The currency dropped an unprecedented 1.2 per cent to 6.2848 per dollar as of 9:43 am in Shanghai, and slid a similar amount in Hong Kong's offshore trading. The onshore spot rate was 0.9 per cent weaker than the reference rate of 6.2298, within the 2 per cent limit allowed by the People's Bank of China.
Monday's reference rate increase was a one-time adjustment, the PBOC said in a statement, adding that it will strengthen the market's role in the fixing and promote the convergence of the onshore and offshore rates. It said also that it will keep the yuan stable at a reasonable level. The yuan's effective exchange rate is stronger than that of other currencies, which is a deviation from market expectations, the central bank said.
The comments come after the PBOC said earlier Tuesday that a strong yuan puts pressure on exports. China's overseas shipments fell 8.3 per cent from a year earlier in dollar terms in July, well below the estimate for a 1.5 per cent decline in a Bloomberg survey.
The PBOC has kept the yuan broadly stable against the dollar since March and had been tightening its grip on the exchange rate as it encourages greater global usage in a push for official reserve status at the International Monetary Fund. The currency's closing levels in Shanghai were restricted to 6.2096 or 6.2097 versus the dollar for more than a week and daily moves were a maximum 0.01 per cent over the past month.
China's surprise cut in the reference rate triggered declines of more than 0.4 per cent in the Australian dollar, South Korea's won and the Singapore dollar, while Hong Kong's Hang Seng Index of shares rose 1.1 per cent and Taiwan's benchmark index gained 1 per cent.