Yuan declines as IMF board delays potential yuan addition to SDR

[BEIJING] China's yuan fell the most in a week after the International Monetary Fund pushed back the earliest date that it can join the lender's basket of reserve currencies.

The IMF's executive board voted Aug 11 to extend the existing Special Drawing Rights basket by nine months to Sept 30, 2016, it said Wednesday. That followed an IMF staff report in July that recommended the extension to minimize disruption if the yuan is approved for inclusion at a review in November. The yuan in Shanghai fell the most in two decades on the day of the IMF vote as China devalued its currency. The People's Bank of China raised its daily reference rate by the most since June.

"The IMF executive board vote is slightly negative for the yuan today as the inclusion will be delayed," said Banny Lam, co-head of research at Agricultural Bank of China International Securities in Hong Kong. "That said, any major yuan depreciation is unlikely in the near term after such a big adjustment last week. It's time for some stability." The yuan fell 0.06 per cent to 6.3994 per dollar as of 10 am in Shanghai, based on China Foreign Exchange Trade System prices. The spot rate is allowed to trade as much as 2 per cent on either side of the PBOC's reference rate, which was strengthened 0.08 per cent to 6.3915.

In Hong Kong's offshore market, the freely-traded yuan weakened 0.07 per cent to 6.4460 per dollar, according to data compiled by Bloomberg.

The IMF is sending a clear message that greater exchange- rate flexibility is needed for the yuan to win reserve-currency status, Michael Every, Hong Kong-based head of financial markets research, said Thursday.

BLOOMBERG