PBOC sharply cuts yuan against US dollar after weak data

The People's Bank of China has decided to cut the yuan almost 2 percent against the US dollar enhancing the market-orientation and benchmark status of central parity.

In a statement Tuesday, the bank said the decision will be effective as of Tuesday.

In a statement, the Chinese central bank said that it had changed the way it calculated the currency's daily midpoint against the greenback, now taking the midpoint from market-makers quotes and the previous day's closing price.

The PBOC set Tuesday's midpoint at 6.2298 per U.S. dollar, down from 6.1162 on Monday.

The reform of Yaun exchange rate formation mechanism will continue to be pushed forward with a market orientation, the statement said.

Market will play a bigger role in exchange rate determination to facilitate the balancing of international payments. Foreign exchange market development will be accelerated and foreign exchange products will be enriched. In addition, the PBC will push forward the opening-up of the foreign exchange market, extending FX trading hours, introducing qualified foreign institutions and promoting the formation of a single exchange rate in both on-shore and off-shore markets.

Based on the developing condition of foreign exchange market and the macroeconomic and financial environment, the PBC will enhance the flexibility of Yaun exchange rate in both directions and keep the exchange rate basically stable at an adaptive and equilibrium level, enabling the market rate to play its role, and improving the managed floating exchange rate regime based on market demand and supply.

Currently, under the complex international economic and financial condition, the PBC are seeing increasingly large and volatile cross-border capital flow.