Amid the continued widening gap in interest rates between the U.S. and China, the value of the yuan is rapidly falling as the Chinese economy has rarely found vitality even after the reopening (resumption of economic activities). It is observed that the Chinese authorities, which have refrained from indiscriminate stimulus measures due to the debt crisis, could intervene in the market in earnest to prevent the weakening of the yuan.
According to Bloomberg on the 30th, the value of the yuan in the offshore market is falling to the dollar and 7.2686 yuan the previous day, the lowest level in seven months since November last year. The weak trend continued on the 30th, with the value of the yuan falling to 7.2769 per dollar as speculation that the U.S. is likely to raise interest rates further was encouragement
As a result, the yuan’s value fell nearly 8% from the beginning of this year, making it the third-largest Asian currency after the Japanese yen and the Malaysian ringgit. All three currencies are hitting a seven-month low against the dollar this month.
Experts believe that the weakening of the yuan’s currency is due to concerns over the widening interest rate gap with the U.S. and low growth and deflation.
On the 13th of last month, the People’s Bank of China, the central bank of China, lowered the applicable interest rate by 0.1 percentage point from 2.00% to 1.90% by supplying 2 billion yuan of liquidity to the market through reverse repurchase agreements (reverse RP). On the 20th, the government cut the loan-preferred interest rate (LPR), which is actually the benchmark interest rate, for the first time in 10 months.
This is the opposite of the U.S., where voices for an additional increase in the benchmark interest rate are growing due to strong economic indicators. If the outflow of overseas funds in China becomes faster due to the widening gap in interest rates between the U.S. and China, the yuan’s depreciation is likely to become sharper.
Pessimism about growth is also key to encouraging the yuan to weaken. “The yuan’s fall is just a reflection of the basic economic fact that the recovery feels slow,” said Guantao, chief economist at China’s International Bank.
