China central bank cuts yuan fixing rate to 6-month low after weak economic data

BEIJING (Bloomberg) - China's central bank cut the yuan's fixing to a six-month low after official data showed factory production, investment and retail sales growth fell short of estimates in the first two months of the year.

The People's Bank of China cut its daily reference rate by 0.03 percent to 6.1617 a US dollar, the weakest since Sept. 5. The yuan was little changed at 6.2630 as of 10:56 a.m. in Shanghai, China Foreign Exchange Trade System prices show. Its gap with the central bank's daily reference rate was 1.64 per cent, the narrowest since Jan. 23 and within the 2 per cent limit.

Industrial output rose 6.8 per cent from a year earlier, according to official data released Wednesday. That's the smallest increase since 2009 and lower than the 7.7 per cent median forecast in a Bloomberg survey. Retail sales climbed 10.7 per cent and fixed-asset investment increased 13.9 per cent, compared with predictions of 11.6 per cent and 15 per cent, respectively. The January-February figures are combined every year to adjust for the impact of the Lunar New Year holidays.

"The economic data were weak and raised concerns that China is facing grim economic prospects," said Zhang Lei, vice- president at Beijing Wealth Mofang Information and Technology Co., a fund management company. "Expectations that the Federal Reserve will raise interest rates are strong and investors are now more interested in the U.S. currency."

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, rose for the seventh day in the longest gaining streak since January. Unemployment in the U.S. fell to 5.5 per cent in February, the least in almost seven years, the U.S. Labor Department reported Friday, boosting speculation the Federal Reserve will increase interest rates.

Ex-PBOC adviser Yu Yongding said Wednesday that China should let the yuan weaken and that it's "absolutely fine" to widen the trading band to 3 or 4 per cent.

The offshore yuan was little changed at 6.2793 a dollar in Hong Kong, according to data compiled by Bloomberg.

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