China central bank sets yuan midpoint at weakest level since 2011

A clerk counting Chinese 100 yuan banknotes at a branch of China Construction Bank in Hai'an, Jiangsu province.
A clerk counting Chinese 100 yuan banknotes at a branch of China Construction Bank in Hai'an, Jiangsu province.PHOTO: REUTERS

SHANGHAI (Reuters) - China's central bank set the yuan's midpoint at 6.4085 to the US dollar on Thursday (Aug 27), the weakest level since 2011.

Earlier in August, Chinese policymakers announced that the midpoint would be calculated in a new fashion, based on the previous close and trades by market makers.

The yuan has slid around three per cent against the dollar since that time, rattling global markets.

The People's Bank of China also cut its guidance on the benchmark seven-day repurchase agreement (repo) money rate 15 basis points to 2.35 per cent, traders said on Thursday. It last cut the guidance rate on June 30, during the height of the initial equity sell-off.

Although short term money rates remain far below their first quarter highs, they have risen sharply in recent weeks following the surprise yuan devaluation on Aug 11, which has accelerated capital outflows.

Tighter money rates are also likely a factor in the recent large equity falls in China. Money rates and equity movements have been tightly correlated for much of 2015.