(Bloomberg) -- Senior People’s Bank of China officials reassured foreign companies that the currency won’t continue to weaken significantly, after the yuan fell below 7 per dollar for the first time since 2008.
The central bank held a meeting with a number of foreign exporters in Beijing Tuesday, at which officials also said that companies’ ability to buy and sell dollars would remain normal, according to a statement provided to Bloomberg. The PBOC didn’t name the officials or the companies that attended the meeting.
The yuan gained in offshore trading following the news, halting a four-day slump. White House economic adviser Larry Kudlow said Tuesday that the U.S. will take a “careful look” at whether China has taken steps to reverse the decline in the yuan.
On Monday, China let the yuan fall in onshore trading below the level that it has defended for years, in a move that was interpreted as a salvo in the trade war with the U.S. and roiled global markets. Officials are now steering against the idea that the yuan will continue to fall and the charge by the U.S. administration that it’s deliberately manipulating the currency.
A precipitous decline in the yuan would affect China-based foreign firms to the extent that imports used in production would become more expensive. A sharp decline would also raise concerns about capital outflows and tightening of exchange controls. For domestic companies, a falling yuan affects those with foreign debt, significant dollar-denominated costs, and a dependence on local consumers the most.
The Trump administration formally labeled China a currency manipulator late Monday in a tit-for-tat escalation of the dispute between the world’s two largest economies. The U.S. action followed China allowing its currency to weaken and ending purchases of American agricultural products, in response to new tariffs Trump announced last week.
On Tuesday, the PBOC set its daily reference rate at 6.9683 per dollar, stronger than the 6.9871 level forecast in a Bloomberg survey of 19 traders and analysts, in a further sign that it doesn’t plan to send the yuan rapidly lower.
The statement added that the central bank and the State Administration of Foreign Exchange will work to keep exchange management policy consistent and stable, and that two-way fluctuation in the yuan’s exchange rate will be “the norm” in the future.
“I am fully confident that the yuan will remain a strong currency in spite of recent fluctuations amid external uncertainties,” PBOC Governor Yi Gang said in a statement Monday.
(Adds Kudlow comments from third paragraph.)
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