PBoC sets daily RMB fix at four-year low

China's central bank cut its daily renminbi ‘fix' to a four-year low today (August 27) – though the country's premier has insisted there is "no basis" for further depreciation of the currency.

The People's Bank of China (PBoC) set the midpoint value around which the renminbi is allowed to fluctuate by +/-2% against the US dollar at 6.41 today (August 27), the lowest level since 2011.

The PBoC changed the way it sets the currency fix in a surprise move on August 11 that prompted the renminbi to weaken by almost 2% against the dollar, rattling currency markets.

Under the new framework, the central bank determines the midpoint value, but the decision is contingent on the previous day's closing rate, which is governed by supply and demand.

The exchange rate reform has put the renminbi under increasing pressure, prompting the PBoC to spend a chunk of its forex reserves propping up the currency.

According to Changchun Hua, a China economist at Nomura in Hong Kong, the central bank bought an estimated $110 billion worth of renminbi between August 11 and August 24.

That amounts to roughly 3% of China's total forex reserves of $3.6 trillion being spent in two weeks. "The pace is certainly not sustainable," says Hua.

‘Big concern for the authorities'

On August 25, the PBoC lowered the renminbi's midpoint value by the biggest margin since the August 11 devaluation. Meanwhile, on Tuesday, premier Li Keqiang insisted the renminbi had reached "equilibrium" and would be "kept basically stable" going forward.

Li made the comments during a meeting in Beijing with Kazakhstan deputy prime minister Bakytzhan Sagintayev, according to state news agency Xinhua.

According to Wang Tao, China economist at UBS, the significance of those comments is a matter of interpretation. "It's about basic stability, we're not talking about no change at all," she says.

Some still expect it will be a difficult commitment to keep. "People are not confident the PBoC can maintain the [renminbi at its] current level," says Hua, who expects "more depreciation down the road".