RMB plunge not likely: analysts

(ECNS) – The slight RMB drop following the central bank's rate-cut last Friday is unlikely to escalate to a steep depreciation, analysts say.

The People's Bank of China (PBOC) unexpectedly cut one-year benchmark lending rates by 40 basis points to 5.6 percent amid an economic slowdown. China's yuan opened at 6.1280 per dollar on Monday, the first trading day after the rate cut, signaling an end to a rally since May.

The liquidity injection will pump more cheap yuan into the market, and make the currency less attractive to investors. Even so, a sharp drop in RMB value is unlikely, analysts say.

Bank of Commerce analyst Liu Dongliang said that as the RMB's volatility is under a managed float scheme, the central bank will strive to keep the currency value steady, and he predicts a strong RMB overall.

Liang Hong, chief economist at China International Capital Corp (CICC), said the push for RMB globalization will require a relatively steady currency, and that a much cheaper yuan will possibly cause trade conflicts and capital outflow.

An HSBC report points out that the rate cut is part of China's stimulus plan to reform and rebalance the economy.

On Tuesday, the value of yuan rebounded by 30 basis points to 6.1390 against the dollar in its central parity rate, according to the China Foreign Exchange Trading System.