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The People’s Bank of China (PBoC) has weakened the yuan against the dollar again today that marked the weakening of the yuan fix for 10 consecutive days. Previously in three Separate occasions, PBoC weakened the yuan fix for 10 consecutive days; Once in December 2016, once in November 2015 and once in August 2008. In the previous instances, the fix was weakened by 1.49 percent, 0.93 percent, and by 0.66 percent respectively. However, this time the weakening has hit record as the yuan fix got weakened by 1.75 percent.
Today, PBoC has set the midpoint at 6.8692 per dollar. This level of the fix is the weakest since June 2008, when the fix was set at 6.8736 per dollar. One of the key reasons behind PBoC’s aggressiveness could be increased outflows of money from the Chinese economy that could have picked up as the dollar started increasing in value one more. Yesterday, the dollar index, which is the value of the dollar against a basket of currencies, reached 13-year high.
Given the current debt profile of China and its inflating housing sector, there were two ways to release pressure; either via higher interest rates, which is not desirable given the current debt level at 230 percent of GDP or via a weakening of the exchange rate.
