(Yicai Global) Oct. 15 -- The yuan-dollar central parity rate has continued its slide to plumb a 21-month low.
China's central bank set the rate at 6.9154 today, down 34 points from last month in the 11th daily drop since Sept. 21, to sink to its lowest depth since January last year.
The reserve ratio of large commercial banks, joint-stock commercial banks, city commercial banks, non-county rural commercial banks and foreign banks will dip by 1 percentage point starting from today and the medium-term lending facility that falls due today will no longer go on, the People's Bank of China announced Oct. 7.
The Chinese government will continue to let the market determine the exchange rate and will not competitively devalue the redback or use the rate as a tool to deal with trade frictions, PBOC Governor Yi Gang said at the International Monetary Fund-World Bank annual meetings that ran Oct. 12 to yesterday in Indonesia.
The rate is still under depreciation pressure from economic fundamentals, said Zhang Ming, chief economist with Ping An Securities. The exchange rate will not fall below seven in the short term since the Chinese government is averse to letting this confound investors' expectations and adding new depreciation pressure among the other uncertainties existing in the capital market, he believes. PBOC has a number of tools to maintain exchange rate stability in the short term, online securities market news portal Weekly on Stocks reported today.
The rate may as well fall below seven, in Zhang's view, as this would present an opportunity for the central bank to stop intervening in the foreign exchange market and start implementing a free-floating system. The impact of a drop below seven would then be limited since the floating rate would cushion external shocks.
Editor: Ben Armour