The yuan fell, retreating from a 19-year high, after the central bank cut its reference rate to a level that required the currency to weaken to remain within permitted trading limits.
The People’s Bank of China lowered its daily fixing by 0.04 percent to 6.2905 per dollar, 1.04 percent less than yesterday’s closing level of 6.2252. The yuan, which is allowed to diverge from the set rate by a maximum 1 percent, fell 0.13 percent, the most since July 23, to 6.2334 in Shanghai, according to the China Foreign Exchange Trade System.
Xi Jinping, 59, replaced Hu Jintao as head of the Communist Party and the nation’s military, the official Xinhua News Agency announced today. He’s joined on the elite Politburo Standing Committee by Li Keqiang, 57, who is expected to replace Premier Wen Jiabao at a March meeting. Central bank Governor Zhou Xiaochuan dropped off the Party’s central committee yesterday, suggesting he could leave his role.
“With Zhou retiring, some might think there’ll be a change in currency policy,” said Cliff Tan, East Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ in Hong Kong. “I don’t think so. Demand for the yuan is rising, aided by inflows on the back of the forecast economic recovery in 2013.”
The composition of China’s new leadership may determine the pace of change on issues such as deregulating interest rates and breaking up state monopolies. The make-up of the standing committee will provide more evidence on policy direction as the world’s second-biggest economy shows signs of rebounding from a seven-quarter slowdown.
As well as Governor Zhou, Commerce Minister Chen Deming and Finance Minister Xie Xuren were absent from the central committee, suggesting they will probably exit those jobs.
Twelve-month non-deliverable forwards for the yuan fell 0.21 percent, the most since Aug. 15, to 6.3340 per dollar in Hong Kong, a 1.6 percent discount to the spot rate in Shanghai, according to data compiled by Bloomberg. In Hong Kong’s offshore market, the yuan weakened 0.25 percent to 6.2285.