Yuan slips to 11-month low as band doubled

The yuan yesterday tumbled to an 11-month low after the Chinese central bank doubled the currency's permitted trading band as it continues to relax its control over the exchange rate.

The onshore spot rate slid 0.45 percent to close at 6.1781 per US dollar in Shanghai, the China Foreign Exchange Trade System prices showed.

It touched as low as 6.1818 during the trading, the weakest since April 2013.

Effective from yesterday, the yuan is allowed to fluctuate 2 percent on each side of the central parity rate set by the People's Bank of China following the central bank's notice on Saturday to double the band.

The PBOC said that it is "withdrawing from routine intervention" of the exchange rates as authorities move toward a more market-driven foreign exchange system.

The central parity rate was set at 6.1321 yuan against the greenback yesterday, and the Chinese currency traded as much as 0.81 percent lower than the daily fixing.

"China's weak economic data imply that it is unlikely to see yuan appreciation and capital inflows after the band widening, indeed the near-term bias could be the opposite," JPMorgan economist Zhu Haibin said in a report.

He said a weaker yuan could boost exports, and capital outflow would drain domestic liquidity and allow the PBOC to cut reserve requirement for banks to release more liquidity to help the economy grow.

Last week, China unveiled lower-than-expected factory output, investment and retail sales figures for the first two months this year. Earlier data showed February exports fell 18 percent from a year ago and an official manufacturing activity index at a 8-month low.

The yuan has lost 2.3 percent from its record of 6.04 on January 14 in what economists believed to be a central bank-engineered weakening to squeeze speculative foreign capital, or hot money, betting on the yuan to appreciate.

The United Overseas Bank yesterday revised down its year-end forecast for the yuan to 6.05 per US dollar from 6.02.