China's economy expanded at a steady 6.7 percent in the third quarter of the year, on track to meet the government's full-year growth target of 6.5 to 7 percent, as increased government spending and a property boom offset stubbornly weak exports.
To cool the property market amid concerns about asset bubbles, more than 20 major cities imposed home purchase restrictions early this month, which analysts said may weigh on growth over the coming quarters.
"A soft yuan could be expected to help bolster the economy somewhat, which could partially offset the possible slowdown in domestic demand due to property tightening," said Zhou Hao, Senior EM Economist Asia with Commerzbank.
Analysts expected the exchange rate of the yuan to fluctuate between 6.8 and 6.65 against the dollar in the near future, and there will be solid support around 6.8.
"Given the fact that China's foreign exchange reserves fall to five-year low in September, it's important to control capital flows at this point," said Hong Hao, managing director and head of research at BOCOM International.
Sharp yuan depreciation will drive more domestic investors seeking overseas asset allocation, fueling capital outflow. "The central bank will intervene to some extent in case of drastic fluctuations to minimize its risks," Hong said.
It's noteworthy that while the yuan exchange rate against the dollar has reached the weakest in six years, the yuan is relatively stable against a basket of currencies.
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