China’s central bank has devalued the yuan to support the yuan’s rise in value, a sign that the country is preparing to ease restrictions on foreign exchange and a major move to boost growth.
The yuan’s exchange rate on the mainland jumped to 6.6064 yuan to the dollar from 6.5860 yuan on Monday after China announced it was reducing the value of foreign currency reserves.
The devaluation came after China’s president Xi Jinping announced on Tuesday that he was willing to lift restrictions on the export of foreign exchange.
It is not clear what the Chinese government will do with the devaluation of the yuan in the wake of the US president’s announcement.
Analysts say the decision could help Chinese growth by boosting domestic demand and helping the yuan retain its edge in global trade.
The currency also lost a quarter of its value against the dollar in the past week.
The depreciation will be welcomed by some in Beijing, who see it as a signal that the Chinese Communist Party will try to boost the economy by boosting exports and increasing the use of foreign currencies, including for foreign investment.US currency strategist Peter Dejong said he expected the yuan would continue to strengthen, but not necessarily the same as it has in the recent past.
“The big story of the last couple of weeks is that the currency is going to fall.
It is not going to get back to where it was.
It’s going to go down a little bit, but it’s not going back to what it was at,” he said.
The US dollar index of the greenback fell 0.5% to $1.1934, compared with a 1.24% rise in the benchmark Japanese yen.
The dollar was down 0.7% at 115.94 yen.
“They [the Chinese] are not in a hurry to devalue,” Mr Dejong added.
“I think that’s the most likely scenario.”
The currency has lost a fifth of its purchasing power in the last month.
The central bank cut the reserve requirement for foreign currency to 10% from 15% in December, to make it easier for foreign investors to purchase the currency.
The move has fuelled fears that Beijing could increase the flow of cash into the country in an attempt to boost economic growth.
But analysts are cautious.
“What they’re really trying to do is to get a big amount of money into the economy.
That is their strategy,” said Dejong.
“They want to help the yuan.
They want to boost their exports and get them into the global economy.”
The US central bank will also ease restrictions to allow overseas companies to raise capital, including from foreign investors.
The Chinese central bank also lowered its benchmark interest rate to 6% from 7.25%, the lowest since September 2016.
Analytically, the move by the Chinese central banks is the most significant since the central bank introduced its central bank bond programme in 2013.
China’s central government is seeking to boost exports to support its economy by increasing investment, which has helped to boost gross domestic product.
The government has also taken steps to boost spending, including an expansion of the number of state-run companies.