The renminbi is set to close out its steepest monthly fall on record as China’s economy reels from severe Covid-19 lockdowns and the US Federal Reserve prepares to raise interest rates, driving global investors to ditch Chinese assets.
The Chinese currency has fallen 4.2 percent this month to about Rmb6.6 per dollar, the biggest drop since the end of its US dollar peg, which was in place from 1994 to 2005. The fall is greater than a one-off devaluation by the Chinese central bank in 2015 that rattled global markets and a tumble in 2018 during the US-China trade war under the Trump administration.
The pace of selling intensified after Chinese president Xi Jinping announced an “all out” infrastructure spending package intended to help mitigate the damage from lockdowns in Shanghai and other cities.
“That was a signal that the government is going to have to do more than they’d planned on to come close to their 5-5 percent growth target for this year,” said
Steve Cochrane, chief Asia-Pacific economist at Moody’s.
On Friday, China’s politburo pledged further measures to stabilise the economy, urging greater efforts to meet economic growth targets, more support for the country’s languishing property market and promising to utilise “every type” of currency policy tool.
That announcement drove a rally for Chinese stocks, with the benchmark CSI 300 index climbing 2 percent. But it did far less for China’s currency, which was close to flat in afternoon trading.
Renminbi takes record tumble
Monthly change in dollar exchange rate (%)