CHINA cut the yuan’s value against the U.S. dollar for the second consecutive day yesterday, roiling global financial markets and driving expectations the currency could be set for further falls.

    Spot yuan in China fell to 6.45 per dollar, its weakest since August 2011, after the central bank set its daily midpoint reference at 6.3306, even weaker than Tuesday’s devaluation. The currency fared worse in international trade, touching 6.59.

    The combined drop of 3.5 percent so far this week is the biggest since China set up its modern foreign exchange system in 1994. It is also a bigger change than the 2.1 percent rise when China unpegged the yuan, also known as the renminbi (RMB), from the dollar in 2005.

    The move has been widely viewed as a way to help boost exports by making them more competitive as growth slows, although China’s central bank described it as part of reforms to make its exchange rate system more market-oriented.

    The central bank sought to reassure financial markets yesterday that it was not embarking on a steady depreciation.

    “Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan,” the People’s Bank of China said.

    The cuts have jolted global share and commodity markets, with jitters spreading yesterday as investors fretted over the possible impact on economies closely tied to the Asian giant.

    A trader at an European bank said the unexpected devaluation had caused “some panic” in markets.

    “Although the central bank made explanations again today, stressing the yuan would not show sustained depreciation, the market is very jittery,” he said.

    The U.S. Government, long a critic of China’s currency regime, offered a mild response, saying it was too early to judge the move, despite previous comments by officials that the yuan is undervalued.

    “China has indicated that the changes announced today are another step in its move to a more market-determined exchange rate,” the U.S. Treasury said Tuesday.

    Analysts at BMI downgraded their end-year forecasts for the yuan to 6.83, down 10 percent from pre-devaluation levels.

    Tuesday’s devaluation followed a run of poor economic data and raised market suspicions that China was embarking on a longer-term slide in the exchange rate. It was the biggest one-day fall in the yuan since a massive devaluation in 1994.

    A cheaper yuan will help Chinese exports by making them less expensive on overseas markets. Last weekend, data showed an 8.3 percent drop in exports in July and that producer prices were well into their fourth year of deflation.

    China’s Ministry of Commerce acknowledged Tuesday that the depreciation would have a stimulative effect on exports.

    Data released later in the day underlined sluggish growth in the world’s second-largest economy. Factory output growth slipped to 6 percent in July from a year earlier, missing market forecasts, while fixed asset investment and retail sales were also lower than expected.

    Data from the Ministry of Finance showed a jump in fiscal expenditure of 24.1 percent in July, which reflects China’s efforts to stimulate economic activity.

    While a weaker yuan will not cure all the ills of China’s exporters, which suffer from rising labor costs, it will help relieve deflationary pressure, a far bigger concern in the view of some economists.

    Falling commodity prices have been blamed for producer price deflation, putting China at risk of repeating the deflationary cycle that blighted Japan for decades.

    Growth in China, the world’s second-largest economy, has slowed markedly this year and is set to hit a 25-year low even if it meets its official 7 percent target. (SD-Agencies)