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China's yuan falls to lowest point in 7 months

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BEIJING, Jan. 26 (Xinhua) -- China's yuan slumped for a second trading day on Monday, hitting the lowest level since June 2014.

The spot exchange rate of the yuan extended the slump on Monday after a sharp decline on the previous trading day, plunging 254 basis points to close at 6.2542, with the fluctuation approaching the daily trading band of 2 percent allowed by the authority.

The rate tumbled 222 basis points on Jan. 23.

In China's spot foreign exchange market, the yuan is allowed to rise or fall by 2 percent from the central parity rate each trading day. The yuan's central parity rate against the yuan was 6.1384 on Monday.

Xie Yaxuan, chief analyst under China Merchants Securities, attributed dropping yuan to the European Central Bank's bond-buying program and results of the Greek election.

The recent change of the yuan reflected the lowering trend of the Euro and also responded to the U.S. Dollar Index, which just reached a high, Xie said.

A strong U.S. dollar and weakening yuan prompted individuals and enterprises to purchase the U.S. dollar in the recent two months, making China's yuan funds outstanding for foreign exchange retreat markedly in December.

The sudden dip drew divided opinions from economists on the outlook for the yuan in 2015. .

Lu Zhengwei, chief economist of the Industrial Bank, expects the yuan to depreciate by at least 5 percent against the U.S. dollar this year, basically equal to the appreciation margin of the U.S. dollar.

But Xie gave out a contrary projection, saying there would be limited room for the yuan to depreciate further against the U.S. dollar.

"The European version of quantitative easing (QE) will prompt its banking sector to increase credit to and national treasury bond purchase from emerging economies including China, which will intermittently push up capital flow into China and trigger the yuan's depreciation," Xie said.

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