(Yicai Global) Sep. 7 -- The Chinese yuan continued to weaken against the US dollar yesterday, sinking to a new two-year low in afterhours trading, after the central bank cut the reserve requirement ratio for foreign currency deposits at banks earlier this week. The People’s Bank of China will keep yuan depreciation within a controllable range and there is no need for concern, analysts said.

The onshore yuan rate dived 119 basis points yesterday from the previous trading day to close at 6.945 against the greenback at 4.30 p.m. China time. By 4.41 p.m. it had depreciated to 6.95, hitting a new two-year low.

It follows the trimming of the forex RRR for the second time this year on Sept. 5, reducing the percentage of foreign currency deposits that banks need to hold in reserve to 6 percent from 8 percent.

This injected an estimated CNY19 billion (USD2.7 billion) of foreign exchange liquidity, much less than the USD39 billion in onshore forex trades that are carried out a day on average, forex strategists at foreign banks told Yicai Global.

The PBOC has many policy tools to stabilize the yuan exchange rate and is unlikely to lose control over yuan depreciation, Xie Yunliang, chief macro analyst at Cinda Securities, told Yicai Global.

There is no need to overly worry about the risk of yuan depreciation because China still has a very significant trade surplus and the ability to control capital outflows, Wang Tao, chief China economist at Swiss banking giant UBS, recently told Yicai Global. The redback is likely to weaken below 7 this year, but return to its current level before the end of the year.

The yuan has softened against the dollar but has strengthened against the euro and Japanese yen, Wang said. “The depreciation of the yuan within a controllable range will boost exports amid heavy economic downward pressure,” she added.

Fluctuations in the short term will occur, but the long-term trend for the yuan is certain, Liu Guoqiang, deputy governor of the PBOC, said yesterday, “It is hard to predict a specific figure of the yuan exchange rate, so we shall not bet on a certain figure. We are glad to see a reasonable, balanced and basically stable yuan exchange rate and we have the ability to keep the yuan exchange rate like this. Nothing should go wrong and we will not allow anything wrong to happen.”

Editor: Kim Taylor