New | PBOC’s new yuan index may signal additional currency weakness
New yuan basket index unveiled Friday could pave the way for further currency devaluation, analysts say
A new index launched by the People’s Bank of China on Friday has stirred up speculation that the central bank has given the green light for further depreciation of the Chinese currency.
The PBOC late on Friday surprised traders by issuing a press statement unveiling a new index – The China Foreign Exchange Trade System (CFETS) exchange rate index. The new index will measure the yuan against a basket of currencies without revealing their exact make up.
In explaining the reason for the new index, the PBOC said: it “will guide market participants to shift their focus from the bilateral USD/RMB exchange rate to the effective exchange rate.”
The PBOC statement was unveiled as the yuan weakened to a fresh four-year low. It also precedes the US Federal Reserve’s policy board meeting for December, where the first interest rate hike in nearly nine years is widely expected to be announced at the conclusion Wednesday.
Analysts believe the latest move signals that the PBOC is about to guide to yuan onto a weaker footing.
“In our view, it is almost an official acknowledgment or a further confirmation that the CNY is no longer pegged to the US dollar but now to a basket of currencies,” Daiwa’s economist Kevin Lai said in a note distributed Monday.
