China tries to calm currency war fears as yuan hits 4-year low after second devaluation

A teller counts yuan banknotes in a bank in Lianyungang, east China's Jiangsu province on Aug 11, 2015.
A teller counts yuan banknotes in a bank in Lianyungang, east China's Jiangsu province on Aug 11, 2015. PHOTO: AFP

SHANGHAI (REUTERS) - China central bank sought to reassure financial markets on Wednesday (Aug 12) that it was not embarking on a steady depreciation of its currency after its central bank devalued the yuan for the second day in a row.

Its first devaluation on Tuesday already sparked fears of a global currency war and raised concerns that Beijing was looking to support its struggling exporters.

Spot yuan fell to 6.43 per US dollar on Wednesday morning, its weakest point since August 2011, after the central bank set its daily midpoint reference even weaker than Tuesday's devaluation. The currency fared worse in offshore trade, touching 6.57.

The People's Bank of China, which had described Tuesday's devaluation as a one-off step to make the yuan more responsive to market forces, said in a statement on Wednesday: "Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan."

A cheaper yuan will help Chinese exports by making them less expensive on overseas markets. Last weekend, data showed an 8.3 per cent drop in exports in July and that producer prices were well into their fourth year of deflation.

More indicators due on Wednesday for factory output, retail sales and fixed-asset investment are expected to underline sluggish growth in the world's second-largest economy.