The Chinese yuan slides to a 13-month low

The Chinese yuan tumbled to a 13-month low Tuesday as Beijing announced it would pursue tax cuts and other expansionary measures, spurring expectations for loosening monetary policy.

The yuan dipped as low as 6.8264 per dollar overnight, its weakest point since June 2017.

The State Council announced Monday that it would pursue a more “vigorous” fiscal policy amid growing uncertainties surrounding trade tensions between China and the US that could slow growth. Earlier this month, the two largest economies hit one another with tariffs on roughly $US34 billion worth of products each. President Donald Trump has threatened to slap additional duties on all Chinese imports to the US.

The announcement came just after the People’s Bank of China unexpectedly rolled out plans to inject $US74 billion into the banking system through its medium-term lending facility. The central bank has also cut its reserve requirement ratio, or the amount of money commercial banks have to store, three times this year.

The moves have raised questions about how comfortable the central bank is with letting the currency fall. But China reiterated on Monday that it will not pursue competitive devaluation in order to benefit its trade balance. A weaker currency tends to boost exports.

Keeping in mind a sudden yuan depreciation that roiled global markets in 2015, analysts have cautioned against such a move.

“Although a weaker Yuan may offset some of the trade tariffs’ impact, further sharp declines will likely lead to capital outflows and another round of panic selling in emerging markets equities & debt,” Hussein Sayed, chief market strategist at FXTM, wrote in an email.

The yuan is down 4.38% versus the dollar this year.

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