China Depreciates Currency to 5 Year Low
Rina S. | | May 27, 2016 01:03 PM EDT |
(Photo : Getty Images/China Photos) China's central bank has devalued the Yuan by 0.3 percent.
The People's Bank of China has weakened the Yuan to the lowest level since March 2011.
The bank set the reference rate at 6.5693 yuan per dollar, down 0.3 percent. The reference rate is set by China's central bank each day.
There are speculations that the central bank is making a pre-emptive move to counter the US Federal Reserve impending raising of the Dollar interest rate.
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The Chinese economy is still grappling with concerns about a "hard landing." However, the concerns were assuaged to an extent by the increase in state investment in early 2016. The government is also looking to stem its stimulus spending. The US dollar is consistently gaining strength against the Yuan, forming the basis of China's latest currency maneuver.
China's central bank is looking to keep the Yuan steady against the US Dollar while depreciating it against other major global currencies. The economy is also dealing with ballooning debt component. According to Capital Economics, China's debt burden in March 2016 was 240 percent of its Gross Domestic Product.
China has resorted to currency devaluation repeatedly in recent times. In August 2015, the country devalued the currency by nearly 2 percent. In January, it was devalued by just 0.5 percent.
Chinese officials are expected to hold talks with their US counterparts about the expected hike in US interest rates.
Christy Tan, Head of markets strategy at National Australia Bank Ltd. in Hong Kong said, "It could be because the authorities want to alleviate some of the depreciation pressure before the Fed interest rate decision in June."
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