China devalues yuan after poor economic data

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China

China devalued its currency on Tuesday after a run of poor economic data, a move it billed as a free-market reform but which some suspect could be the beginning of a longer-term slide in the exchange rate.
The central bank set its official guidance rate down nearly 2 percent to 6.2298 yuan per dollar – its lowest point in almost three years – in what it said was a change in methodology to make it more responsive to market forces.
It was the biggest one-day fall since a massive devaluation in 1994 when China aligned its official and market rates.
“Since China’s trade in goods continues to post relatively large surpluses, the yuan’s real effective exchange rate is still relatively strong versus various global currencies, and is deviating from market expectations,” the central bank said.
“Therefore, it is necessary to further improve the yuan’s midpoint pricing to meet the needs of the market.”
The People’s Bank of China (PBOC) called it a “one-off depreciation”, but economists disagreed over the significance of a move that reversed a previous strong-yuan policy that aimed to boost domestic consumption and outward investment.

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He said a strong yuan was needed to force China toward consumption and away from low-end manufacturing. “What the world needs from China is not more supply; what it needs is demand.”
The devaluation followed weekend data that showed China’s exports tumbled 8.3 percent in July, hit by weaker demand from Europe, the United States and Japan, and that producer prices were well into their fourth year of deflation.
The move hurt the Australian and New Zealand dollars and the Korean won, fanning talk of a round of currency devaluations from other major exporters. But some of Asia’s most interventionist central banks appeared to be holding their nerve on currency policy.

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