China’s central bank is under pressure to weaken the yuan even further

BEIJING (Neo Web Desk): China’s move to devalue its currency reflects a growing clamor within government circles for a weaker yuan to help struggling exporters, ensuring the central bank remains under pressure to drag it down further in the months ahead, sources said.

The yuan has fallen almost 4 percent in two days since the central bank announced the devaluation on Tuesday, but sources involved in the policy-making process said powerful voices inside the government were pushing for it to go still lower.

Their comments, which offer a rare insight into the argument going on behind the scenes in Beijing, suggest there is pressure for an overall devaluation of almost 10 percent.

“There have been internal calls for the exchange rate to be more flexible, or depreciated appropriately, to help stabilize external demand and growth,” said a senior economist at a government think-tank that advises policy-makers in Beijing.

“I think yuan depreciation within 10 percent will be manageable. There should be enough depreciation, otherwise it won’t be able to stimulate exports.”

The Commerce Ministry, which on Wednesday publicly welcomed the devaluation as an export stimulus, had led the push for Beijing to abandon its previous strong-yuan policy.

Reuters could not verify how much influence Commerce Ministry officials had wielded in the decision to drive the yuan lower, but the sources said its officials were claiming victory after a long lobbying campaign against what some of them regarded as over-zealous reform led by the central bank.

The People’s bank of China (PBOC) had been keeping the yuan strong to support the ruling Communist Party’s goal of shifting the economy’s main engine from exports to domestic demand.

A stronger yuan boosts domestic buying power, helps Chinese firms to borrow and invest abroad, and encourages foreign firms and governments to increase their use of the currency.

Until the devaluation, the currency had appreciated overall by 14 percent over the past 12 months on a trade-weighted basis, according to data from the Bank for International Settlements.


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