CHINA’S central bank set the yuan’s central parity rate weaker than 6.7 to the U.S. dollar for the first time in six years yesterday, the first day of trading after it joined the International Monetary Fund’s special drawing rights reserve currency basket.

    The currency has been declining for months in the face of a globally stronger dollar, slowing growth in the Chinese economy and capital outflows from the world’s second-largest economy.

    The People’s Bank of China yesterday lowered the central rate by 230 basis points from the previous trading day to 6.7008, its weakest since 2010.

    Chinese markets were closed all last week for national holidays, during which the dollar’s performance was “quite strong,” Lu Zhengwei, chief economist at Industrial Bank said.

    “I believe today’s slump is a response to the strong dollar during the holiday.”

    Yesterday was the first trading day in China since the yuan joined the dollar, pound, yen and euro in the IMF’s special drawing rights reserve currency basket Oct. 1, after a decision last year.

    Zhang Qun, an analyst at Citic Securities, said the currency’s value was increasingly dependent on China’s economic fundamentals, adding: “In the medium and long term, the yuan will continue to depreciate at a steady, slow pace.”

    The Asian giant’s economy expanded only 6.9 percent in 2015 — its weakest rate in a quarter of a century — and has slowed further this year.

    In August of last year, China devalued the yuan, causing investors to dump the currency in volumes not seen since 1994 and sparking an outflow of capital from the country. The yuan has fallen 8 percent against the U.S. dollar over the last two years.

    Strong U.S. economic data released in September and heightened market expectations that the U.S. Fed will raise interest rates in December have also caused short-term pressure on the yuan, analysts said.

    China’s foreign exchange reserves shrank to US$3.17 trillion last month, the lowest since 2011, in an indication that China’s central bank was previously selling dollars to support the yuan.

    The yuan moved less than 0.1 percent on a closing basis in the two weeks before it became part of the International Monetary Fund’s special drawing rights Oct. 1. Now that the entry is done, the People’s Bank of China may allow greater flexibility, according to Commonwealth Bank of Australia. (SD-Agencies)