SHANGHAI: China's yuan closed weaker against the dollar on Monday and posted its second-biggest monthly loss on record as the central bank kept up strong pressure on speculators and sought to curb hot money inflows.
The People's Bank of China (PBOC) fixed the official mid-point at a six-month low for the second straight trading session, setting a weaker tone for the day, and traders expect the currency to slide further in coming weeks.
There were signs that major state-owned banks continued to buy dollars, a move traders say reflects the central intention to guide the yuan towards further depreciation.
The yuan fell some 2.7 percent against the dollar in the first quarter, nearly erasing all of the gains it made last year.
Spot yuan closed at 6.2180 per dollar on Monday, 0.09 percent weaker than Friday's close, after the PBOC fixed its mid-point at 6.1521, down 0.05 percent from the previous trading day.
It also marked the official base rate's weakest level since Sept. 18.
The yuan depreciated 1.2 percent against the dollar in March, the second biggest monthly loss since China established the domestic foreign exchange market in 1994.
It recorded its biggest monthly loss in February when the PBOC surprised the world by engineering a 1.4 percent fall in the currency, in what traders say was designed to punish speculators betting on non-stop yuan appreciation.
"In recent years, the first quarter is typically a weak season for China's foreign trade and exports, so it offers a good opportunity for the central bank to launch a campaign to fight against those who are long the yuan," said a trader at a Chinese commercial bank in Shanghai.
"Foreign trade is expected to rebound in the second quarter and strengthen in the second half of the year, so the market widely expects the yuan to stabilise in the second quarter and rebound for the rest of the year," he said.
Traders said the yuan was likely to fall to 6.25 versus the dollar in coming weeks, then rebound in the second quarter as the trade outlook improves.
In a related development, China's foreign exchange regulator released data showing outstanding foreign debt of $863.2 billion at the end of last year, with outstanding short-term foreign debt standing at a high ratio of 78 percent of the total.
Traders, however, said the data had no immediate impact on trading on Monday.
China's manufacturing engine contracted in the first quarter of 2014, a preliminary private survey showed last week, raising market expectations of government stimulus to arrest a loss of momentum in the world's second-largest economy this year.