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China’s central bank tells foreign firms yuan won’t keep falling

China’s weaker yuan makes some firms particularly vulnerable.
On Monday, China let the yuan fall in onshore trading below the level that it has defended for years. Picture: Qilai Shen/Bloomberg

Senior People’s Bank of China officials reassured foreign companies that the currency won’t continue to weaken significantly, a day after the yuan fell below 7 per dollar for the first time since 2008.

The central bank held a meeting with a number of foreign exporters in Beijing Tuesday, at which officials also said that companies’ ability to buy and sell dollars would remain normal, according to a statement provided to Bloomberg.

The yuan gained in offshore trading following the news, reaching 7.0428 per dollar, its strongest level this session.

The PBOC didn’t name the officials or the companies that attended the meeting.

On Monday, China let the yuan fall in onshore trading below the level that it has defended for years, in a move that was interpreted as a salvo in the trade war with the US and roiled global markets. Officials are now steering against the idea that the yuan will continue to fall and the charge by the US administration that it’s deliberately manipulating the currency.

A precipitous decline in the yuan would affect China-based foreign firms to the extent that imports used in production would become more expensive. A sharp decline would also raise concerns about capital outflows and tightening of exchange controls. For domestic companies, a falling yuan affects those with foreign debt, significant dollar-denominated costs, and a dependence on local consumers the most.

China’s weaker yuan makes these firms particularly vulnerable

On Tuesday, the PBOC set its daily reference rate at 6.96 per dollar, stronger than the 6.98 level forecast in a Bloomberg survey of 19 traders and analysts.

The statement added that the central bank and the State Administration of Foreign Exchange will work to keep exchange management policy consistent and stable, and that two-way fluctuation in the yuan’s exchange rate will be “the norm” in the future.

“I am fully confident that the yuan will remain a strong currency in spite of recent fluctuations amid external uncertainties,” PBOC Governor Yi Gang said in a statement Monday. President Donald Trump called the yuan’s plunge below the symbolic level of 7 per dollar “currency manipulation” in a tweet.

© 2019 Bloomberg L.P.

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