Chinese yuan slides to a 13-month low

China’s
Central Bank Governor Yi Gang delivers a speech at the China
Development Forum at the Diaoyutai State Guesthouse in Beijing,
Sunday, March 25, 2018. Yi outlined sweeping plans Sunday to rein
in rising debt and financial risk, but expressed confidence that
Beijing can prevent potential dangers.
AP/Emily Wang

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The Chinese
yuan tumbled to a 13-month low Tuesday as Beijing announced
it would pursue tax cuts and other expansionary measures,
spurring expectations for loosening monetary policy. 

The yuan dipped as low as 6.8264 per dollar overnight, its
weakest point since June 2017.

The State Council announced Monday that it would pursue
a more
“vigorous” fiscal policy amid growing uncertainties
surrounding trade tensions between China and the US that could
slow growth. Earlier this month, the two largest economies hit
one another with tariffs on
roughly $34 billion worth of products each. President Donald
Trump has
threatened to slap additional duties on all Chinese imports
to the US.

The announcement came just after the People’s Bank of China
unexpectedly rolled out plans to inject $74 billion into the
banking system through its medium-term lending facility. The
central bank has also cut its reserve requirement ratio, or
the amount of money commercial banks have to store, three times
this year.

The moves have raised questions about how comfortable the central
bank is with letting the currency fall. But China reiterated on
Monday that
it will not pursue competitive devaluation in order to
benefit its trade balance. A weaker currency tends to boost
exports.

Keeping in mind a
sudden yuan depreciation that roiled global markets in 2015,
analysts have cautioned against such a move.

“Although a weaker Yuan may offset some of the trade tariffs’
impact, further sharp declines will likely lead to capital
outflows and another round of panic selling in emerging markets
equities & debt,” Hussein Sayed, chief market strategist
at FXTM, wrote in an email. 

The yuan is down 4.38% versus the dollar this year.

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