Experts say currency will remain stable against dollar in near term
The People's Bank of China (PBOC) on Thursday lowered the yuan's reference rate against the greenback to the weakest level since late March, but experts said the currency's exchange rate would remain more or less stable in the short term.
The central bank set the reference rate at 6.5128 yuan per dollar on Thursday, down 0.28 percent from the previous trading day, according to data from PBOC's website.
The PBOC sets the guidance rate every morning and allows the yuan to move up and down within a 2 percent range.
The yuan's exchange rate has been fluctuating significantly in recent days. The PBOC set the yuan's reference rate at 6.4565 per dollar on Tuesday, the strongest since mid-December 2016.
Experts attributed the turbulence to several factors.
"The recovery in China's economy since the first quarter and the diminished pressure of capital outflows both support a stable yuan rate in the short term," said Liu Xuezhi, a senior analyst at Bank of Communications.
Wang Tao, chief China economist at UBS, held a similar view. "FX reserves likely stayed stable and capital outflow pressures likely continued to ease on the back of the continued tightening of capital outflow controls," she said in a note.
"April's expected higher trade surplus likely contributed a bit more to China's FX reserve accumulation than previously," she added.
At the same time, the turbulence of the dollar is intensifying since there is a large divergence of views about whether the Federal Reserve will raise interest rates in June, and experts said this led to the great turbulence of yuan's exchange rate against the greenback.
The Fed decided last week to keep interest rates unchanged at its 0.25-0.5 percent target range.
The market also saw the change in investor sentiment as a factor that intensified the yuan's turbulence.
"The uncertainty of interest rate hike expectations in the U.S. and the economic conditions in China both make for a larger fluctuation range and greater and more frequent volatility," Liu said.
