CHINA cut the yuan’s value against the U.S. dollar yesterday, making it weaker than 6.5 for the first time in more than four-and-a-half years, with pressure mounting as the world’s second-largest economy has contracted.

    The People’s Bank of China said it is seeking to make the yuan more market-oriented and has succeeded in a long campaign to have the International Monetary Fund (IMF) include the yuan in its Special Drawing Rights basket.

    Nonetheless China controls it currency, including only allowing it to move up or down 2 percent against the U.S. dollar from the mid-rate set daily by the central bank.

    The central bank set the daily reference at 6.5032 yuan to the dollar yesterday, the weakest since May 24, 2011, the China Foreign Exchange Trade System showed.

    A devaluation in August saw China lower the normally stable unit nearly 5 percent against the greenback in a week, sending tremors through global markets.

    A falling exchange rate makes exports from the world’s second-largest economy more competitive against other countries’ products in global markets, but also makes its imports more expensive in yuan terms.

    “The trend for the yuan to weaken is continuing in the new year as the People’s Bank of China weakens the currency’s fixing,” said Eddie Cheung, a Hong Kong-based currency strategist at Standard Chartered Plc.

    “The currency will drop further in the first quarter as China makes the exchange rate more market-driven.”

    After the IMF inclusion, the country’s central bank signalled it may loosen the yuan’s peg to the U.S. dollar, measuring it instead against a basket of currencies of its major trading partners.

    In another development, the cost of borrowing yuan in Hong Kong jumped the most since September on concern speculators are shipping the currency onshore to take advantage of the difference in its rates at home and abroad.

    The freely traded offshore yuan fell yesterday to trade 1.6 percent weaker than the rate in Shanghai, the biggest difference in three months, creating an incentive for companies to buy overseas and sell in the domestic market. The supply of yuan abroad has tightened also on signs that China is taking steps to make it costlier to short the currency as it tries to narrow the spread. (SD-Agencies)