China has devaluated its currency Yuan for the second straight day. The country’s central bank devaluated the currency again by almost two per cent on Wednesday. On Tuesday, Yuan was devaluated by 1.9 per cent.
The Yuan hit a four-year low on Wednesday morning. The move sparked fears of a global currency war and accusations that Beijing was giving an unfair advantage to its struggling exporters. Spot Yuan fell to 6.43 per dollar, the weakest since August 2011.
The central bank, which had described the devaluation as a one-off step to make the yuan more responsive to market forces, tried to reassure financial markets that it was not embarking on a steady depreciation.
The rapid drop in the value of Yuan – more than 4 per cent in the last two days has affected currencies across the world.
The Rupee hit a two-year low against the dollar. It touched a high of 64.92 on Wednesday morning, finally closing at 64.78. A sharp decline in world currencies led to Rupee’s fall. The Australian dollar too plunged to a six-year low.
Indian markets too felt the heat. Sensex plunged 354 points to finally close at 27,512. Nifty also slipped by 108.55 points to close below the 8,400 mark.
China’s surprise move of devaluating Yuan is the biggest in two decades, and comes amid a period of slower economic growth and increased stock market volatility in China. Yuan was reeling at a near three-year low against the US dollar.
China’s central bank said the nearly 2 per cent depreciation is based on a new way of managing the exchange rate that better reflected market forces.
However, analysts suspect that the devaluation has been announced to boost exports in the world’s second-biggest economy. A weaker yuan will make Chinese goods less expensive in foreign markets and may boost exports.
The slowdown in exports threatens China’s 7 per cent economic growth target for this year. The country is currently growing at the slowest pace in decades.