China's yuan drops nearly 1% against dollar in 'deliberate' tactic

SHANGHAI (AFP) - China's yuan currency fell nearly one per cent against the US dollar in intraday trade on Friday, its biggest drop in years, in what dealers viewed as a deliberate central bank tactic.

The yuan - also called the renminbi (RMB) - dropped around 0.9 per cent from the previous day's close in morning trading to 6.1808 against US$1, its largest slide since the country ended a fixed peg to the dollar in 2005, Dow Jones Newswires reported.

The currency has fallen repeatedly in the last two weeks with many dealers believing the depreciation is a deliberate move by the People's Bank of China (PBoC), the central bank, to target speculative funds betting on continued rises.

"PBoC's recent action is to curb the one-way bet and possibly unwelcome arbitrage activities," Australia and New Zealand Banking Group said in a research report on Friday.

"The recent move has clearly indicated PBoC is willing to tolerate a more volatile market movement in the year ahead," ANZ said, but added it still expected "mild" appreciation in the medium term.

China's financial authorities allow the currency to move up or down one per cent daily on either side of a mid-point they say is set by polling market makers.

By mid-afternoon on Friday, the yuan was trading at 6.1554 to US$1, figures from the national foreign exchange market showed, a recovery from the low though still down on Thursday's close of 6.1284.

But worries over a slowdown in the property market and the state of the domestic economy were also hurting the yuan, analysts said.

"Yuan depreciation is also associated with property bubbles that everyone is worried about, intensifying concerns over growth momentum in the domestic economy," Mr Jiang Shu, an analyst for Industrial Bank in Shanghai, told AFP.

Friday's sharp fall came despite the China Foreign Exchange Trading System, the national foreign exchange market, announcing a mid-point of 6.1214 yuan for the day, stronger than Thursday's fix of 6.1224.

China's Communist rulers keep a tight grip on the yuan, as one of their key tools to control the economy, and due to worries about unpredictable fund inflows or outflows.

The yuan steadily appreciated against the US dollar last year, rising more than three per cent, official figures showed.

The government's State Administration of Foreign Exchange, which advises the central bank on policy, said on Wednesday that the unexpected depreciation in the yuan's value was normal and advised there could be more two-way fluctuations in trading.