The People’s Bank of China sought to dispel fears of a prolonged fall in the renminbi yesterday. The currency fell sharply for a second consecutive day, spreading alarm in global markets.
The renminbi’s decline to a four-year low weighed on equities and commodities, as fears grew that it could presage a global economic slowdown. The S&P 500 dropped 1 per cent to briefly turn negative for the year before steadying, while the FTSE Eurofirst 300 fell 2.7 per cent and stock markets slid across Asia.
China’s decision to tolerate a weaker currency has fanned fears that its economy, long an engine of global growth, is slowing much faster than thought. Investors worry that a sustained fall in the renminbi and competitive currency devaluations across Asia could have a deflationary effect, which would further weigh on global economic prospects.