13/11/2016 05:13 AST
China weakened the yuan’s reference rate to beyond 6.8 to the dollar for the first time in more than six years Friday as the greenback rebounded strongly, with analysts warning the unit could drop further.
The People’s Bank of China set the value of the yuan — also known as the renminbi — at 6.8115 to the greenback, down 0.34 percent from Thursday’s fixing, according to data from the Foreign Exchange Trade System.
The dollar surged on Thursday, rebounding strongly from steep losses earlier this week after Donald Trump — whose surprise presidential win shocked the markets — gave a reassuring speech to soothe worried investors.
Friday’s yuan fix is the lowest since September 2010 and an analyst estimated it could still fall further.
“It has a lot further to go! If President Trump injects massive fiscal stimulus and protectionism then we will see a MUCH weaker CNY and CNH,” Michael Every, head of Asia-Pacific financial markets research at Rabo Bank, said in a written response to AFP, referring to both the onshore and offshore yuan quotes.
“Question is, how long until we break through 7, and where is the final stop? I think below 8 over the medium term, all things being equal.”
The onshore yuan closed at 6.8155 on Friday, down 0.34 percent from Thursday’s close of 6.7925, according to the Foreign Exchange Trade System.
China only allows the yuan to rise or fall two percent on either side of the daily fix, one of the ways it maintains control over the currency.
In August of last year, Beijing suddenly devalued the yuan, causing investors to dump the unit in volumes not seen since 1994 and sparking an outflow of capital from China.
Chinese banks, meanwhile, extended 651.3 billion yuan ($95.56 billion) in net new yuan loans in October, below expectations and falling sharply from September, as policymakers pledged to prevent asset bubbles in the increasingly debt-fueled economy.
The People’s Bank of China has been keeping policy accommodative to spur growth — as evident by record bank lending so far this year — but it faces an uphill battle to divert money from the red-hot property market into the weak real economy.
“Credit growth slowed down as mortgage lending weakened, after the introduction of a series of real estate controlling polices,” analysts at Haitong Securities said in a note.
“Corporate financing needs remain weak. There are risks that credit may continue to shrink in the future.”
Analysts polled by Reuters had expected new lending to have fallen back to 700 billion yuan from September’s three-month high of 1.22 trillion yuan.
New bank loans totalled 10.8 trillion yuan in the first 10 months of the year — an all-time high, according to Reuters calculations based on central bank data.
Lending has been driven heavily by robust mortgage growth as the housing market booms, with banks increasing their exposure to the sector to offset a surge in non-performing loans in more sluggish parts of the economy.
New household loans, mostly mortgages, fell to 433.1 billion yuan in October from 637 billion yuan in September, central bank data showed, suggesting demand for mortgages is cooling after a spate of steps by local governments to restrict home purchases to cool soaring prices.
The ratio of new household loans to total new loans rose to 66.5 percent from 52 percent in September, the data showed.
Highlighting underlying weakness in the broader economy, new medium- to long-term corporate loans fell sharply to 72.8 billion yuan from 446.6 billion yuan in September.
The central bank said this week that it will maintain ample liquidity in the economy while taking steps to prevent asset bubbles, adding that the balance between stabilising growth and preventing bubbles has become more challenging.
liquidity
China’s total social financing (TSF), a broad measure of credit and liquidity in the ec
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