Inflation-hit world cheers China’s falling yuan

A man tries to snatch 100-yuan banknotes inside a glass cage during an event held to celebrate the upcoming Spring Festival, at a park in Hangzhou, Zhejiang province, China January 26, 2016. REUTERS/Stringer

HONG KONG, Aug 25 (Reuters Breakingviews) - The currency has resumed sliding sharply following an additional round of rate cuts, prompting the foreign exchange regulator to harangue commercial lenders to stop piling into dollars so quickly. The admonition has shown little effect. The yuan has given up over 8% of its value against the greenback since the first quarter and is slowly closing in on 7 per dollar, a level not seen since mid-2020.

Domestically, a weaker yuan means higher prices for imports, energy and food in particular, which local consumers will not appreciate. The rate cuts are incremental so there is not much upside. But foreign governments fighting inflation may cheer products from the world’s largest trading economy getting cheaper.

Some wonder whether Beijing’s rescue efforts might cause a domestic demand boom, as in 2009, which would aggravate global price pressures. Not to fear. The country’s cabinet released yet another policy package on Wednesday, which will double infrastructure spending and bring forward bond issuance quotas from 2023 to deliver a headline figure of roughly $146 billion in new spending. But at less than 1% of annual GDP, domestic markets shrugged off the news.

The Chinese government has intimated it could do more to help cool global inflation. The yuan is already pitching in. (By Pete Sweeney)

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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Editing by Una Galani and Thomas Shum

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