THE yuan sank to a five-year low yesterday after China’s central bank set the currency’s reference rate at an unexpectedly weak level, a sign that policymakers are becoming more tolerant of depreciation as intervention costs rise and economic growth slows.

    The People’s Bank of China yesterday cut its daily fixing to the lowest level since April 2011, weaker than the yuan’s last onshore closing level. The currency fell 0.6 percent in Hong Kong’s freely traded market as well as in Shanghai, with both exchange rates dropping to their weakest levels since at least March 2011. The gap between the two rates reached a record before the start of onshore trading yesterday.

    While China’s defense of the yuan kept the currency stable for about four months after a devaluation in August, the intervention led to the first-ever annual decline in the nation’s foreign-exchange reserves.

    Official support for the currency has been more sporadic in recent months as the weakest economic expansion in a quarter century and rising U.S. interest rates fueled capital outflows.

    Analysts at Macquarie Bank Ltd. and Mizuho Bank Ltd. said the central bank’s currency policy is becoming harder to gauge.

    The central bank intervened in the currency market Tuesday to prevent excessive volatility, said a person with direct knowledge of the matter. A few major Chinese banks sold U.S. currency when the onshore yuan dropped to around 6.5460 per dollar yesterday, but the offerings weren’t stable or constant, according to traders who asked not to be named. (SD-Agencies)