China’s central bank would tolerate a fall in the yuan to as low as 6.8 per dollar in 2016 to support the economy, which would mean the currency matching last year’s record decline of 4.5 percent, policy sources said.
The yuan is already trading at its lowest level in more than five years, so the central bank would ensure any decline is gradual for fear of triggering capital outflows and criticism from trading partners such as the United States, said government economists and advisers involved in regular policy discussions.
Presumptive U.S. Republican Presidential nominee Donald Trump already has China in his sights, saying on Wednesday he would label China a currency manipulator if elected in November.
The economists and advisers are not directly briefed on policy by the People’s Bank of China (PBOC), but they have regular meetings and interactions with central bank officials and they provide policy recommendations. They said the central bank would tolerate a further weakening of the yuan this year to between 6.7-6.8 per dollar.
“The central bank is willing to see yuan depreciation, as long as depreciation expectations are under control,” said a government economist, who requested anonymity due to the sensitivity of the matter.
“The Brexit vote was a big shock. The market volatility may last for some time.”
Investors keep a close watch when the yuan is in decline. A surprise devaluation of the yuan last August sent global markets into a spin on worries the world’s second-biggest economy was in worst shape than Beijing had let on, prompting massive capital outflows as investors sought safe havens overseas.
Other emerging market currencies have also fallen in the wake of Britain’s vote to leave the European Union, but the yuan is the weakest major Asian currency against the dollar this year.
Following the Reuters report, the yuan CNY=CFXS fell as low as 6.6549 per dollar, near a 5-1/2 year intraday low on Monday. State-owned banks were suspected of intervening to sell dollars, currency traders said.
At the low, the yuan had fallen about 2.4 percent this year.