China devalued its currency once again on Thursday prompting fears of a currency war in the Asian region.
The country’s neighbours, including India and Japan, may respond through market intervention in case if a weaker Chinese yuan threaten their exports.
“China may be trying to save its gross domestic product from further slide, and protect its investors. But this can result in a currency war, which would be counter-productive,” Oliver Rui, professor of finance and accounts at the China Europe International Business School told TNN.
The devaluation move came on a day when the country’s stock markets plunged sharply prompting the regulator to stop trading.
Both the developments in the currency and stock markets have triggered bearing sentiments in financial markets of other countries.
The People’s Bank of China, the central bank, reduced the guidance rate by 0.5% on Thursday taking the exchange rate to 6.5646 per dollar, which is the weakest point since February 2011.
China’s recent efforts at progressive devaluation of the yuan have already resulted in Vietnam and South Korea joining in competitive devaluation.
Japan had preceded China in reducing the value of the Yen to encourage its exports.
The turmoil in the stock markets of Shanghai and Shenzhen was largely blamed on strict circuitbreaker rules imposed by the China Securities Regulatory Commission.
The regulator recently announced that the market would close down if prices slid beyond 7%.