LONDON (Reuters) – A freer-floating yuan could be a positive for China’s sovereign credit rating, agency Fitch said on Tuesday, by helping preserve its foreign exchange reserves and cushioning some of the negative effects of U.S. trade tariffs.
Andrew Fennell, a director in Fitch’s sovereign ratings arm, said Monday’s fall in the yuan past the seven-per-dollar level was “not meaningful from a sovereign credit perspective.”
“In fact, to the extent that moves are orderly and do not destabilize currency expectations or precipitate capital outflows, greater currency flexibility could even be viewed as positive from a credit perspective.”
The Chinese authorities have been seeking to introduce greater currency flexibility for some time, he added, while the Chinese currency has tended to weaken during periods of trade war escalation and strengthen during cooling-off periods.
The latest escalation has seen Washington threaten 10% tariffs on an additional $300 billion of Chinese exports. Fitch has said that move took the extent of U.S. trade protectionism beyond its baseline forecasts.
Fitch rates China at A+ with a ‘stable’ outlook, in line with both S&P Global and Moody’s.
Reporting by Marc Jones; editing by Josephine Mason