Slump to lowest level in year may mark the end of appreciation

The yuan's fall against the US dollar will discourage fund inflows, put pressure on domestic liquidity, and may prompt the Chinese government to loosen its monetary policy, according to analysts.

The yuan dived to a one-year low against the greenback at one point on Thursday, in a slump that may mark the end of the Chinese currency's decade-long appreciation.

After closing at 6.1965 against the dollar on Wednesday, the yuan opened on Thursday at 6.2080. It fell to 6.2334 at one stage, the lowest since March 4, 2013, before a slight recovery saw it close at 6.2275.

The fall comes as the People's Bank of China, the central bank, set the daily reference rate for the currency 109 basis points lower at 6.1460, the lowest so far this year.

The yuan has lost more than 1 percent against the dollar this month, on the back of a 1.38 percent record dip in February that is widely believed to have been a central bank maneuver to chase away speculators betting on one-way appreciation of the yuan.

However, on March 11, Zhou Xiaochuan, the central bank governor, denied any intervention, saying the yuan's retreat had been driven solely by market forces.

The central bank doubled the yuan's daily trading band against the dollar to 2 percent last weekend, in a move seen by currency market observers as a move to end the yuan's steady appreciation over the past 10 years.

Liu Dongliang, an analyst with China Merchants Bank, said: "The yuan will be more volatile. The era of slow and one-way appreciation is over."