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China currency official defends yuan depreciation, forecasts volatility

Published on May 6, 2014 2:15 PM
A clerk counts 100 Chinese yuan banknotes at a branch of China Merchants Bank in Hefei, Anhui province on March 17, 2014. -- FILE PHOTO: REUTERS 

SHANGHAI (REUTERS) - The division head at China's State Administration of Foreign Exchange (SAFE) said on Tuesday the current weakness of the Chinese currency is acceptable and he predicted more volatility going forward.

Mr Guan Tao, head of the international payments division at SAFE, wrote in the official Shanghai Securities News on Tuesday that the yuan's dramatic slide in 2014 was rational, given the performance of other emerging market currencies.

"From the beginning of 2013 to the end of March, major emerging market currencies have devalued by an average of 8.2 percent, while at the same time the renminbi's official midpoint has appreciated 2.5 percent," he said, adding that the volatility implied in yuan futures contracts was far lower than comparable emerging market currencies.

The midpoint, a guidance rate set by the central bank, has indeed appreciated since the 2013, but the actual traded rate, which is allowed to diverge from the midpoint within a designated range each day, has not followed. On April 30 it changed hands at a low of 6.2676, its lowest point since October 2012.

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