Any weakening of the yuan in line with China’s slowing growth is understandable, Federal Reserve Bank of New York President William C. Dudley said, withholding judgment on the nation’s surprise shift in currency policy.
“Clearly what is happening” is that the Chinese yuan was appreciating along with the U.S. dollar, Dudley said Wednesday in response to a question after delivering a speech in Rochester, New York. If China’s economy has proved weaker than its authorities anticipated, “it’s probably not inappropriate for the currency to adjust in consequence to that weakness.”
Still, it’s too soon to “draw firm conclusions about what this means,” Dudley said.
Financial markets are attuned to what’s happening because it “has implications much broader than China, it has implications for the global economy,” Dudley said. “I’ll be watching very closely what happens there.”
The yuan sank for a second day earlier Wednesday, spurring China’s central bank to intervene amid the biggest rout since 1994. On Tuesday, the People’s Bank of China cut the currency’s value by 1.9 percent in what it called a one-time adjustment, and said the yuan’s fixing will become more aligned with supply and demand.
This week’s move comes against a backdrop of slowing growth in the world’s second-largest economy.
The International Monetary Fund projected in July that China’s economy will expand 6.8 percent this year, down from 7.4 percent growth in 2014. A spate of weak data in recent days has showed a pullback in Chinese industrial production and a slump in exports.