The central parity rate of the Chinese currency, the yuan, weakened against the U.S. dollar Tuesday after a relaxation of controls on capital outflows.
The central parity rate of the yuan weakened 280 basis points to 6.5277 against the U.S. dollar, ending a record 11-day rise, according to the China Foreign Exchange Trade System.
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 central parity rate of the yuan against the U.S. dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.
The dollar index, which tracks the greenback against a basket of six major currencies, was 0.66 percent higher at 91.957 on Tuesday.
Starting Monday, China's central bank scrapped reserve requirements of 20 percent for financial institutions settling foreign exchange forward yuan positions.
Meanwhile, the central bank's substantial supervision of reserves put aside by foreign financial institutions was also loosened.
The adjustment was made as the current market environment has changed significantly, which means counter-cyclical macro-prudential policies have given way to neutral monetary policy, said Sun Guofeng, head of the financial research institute affiliated to People's Bank of China.
The move will make it cheaper for companies and investors to buy dollars while selling the yuan, and thereby help ease the pace of the Chinese currency's recent rally, according to Lianxun Securities.
China is pursuing a prudent and neutral monetary policy in 2017, applying a full range of policy instruments to maintain basic stability in liquidity and hold interest rates at an appropriate level.
The correction of the yuan, however, does not necessarily mean its rising trend has been reversed, rather that the yuan-dollar exchange rate will probably achieve two-way fluctuations with improving flexibility, said Ying Xiwen, senior researcher of China Minsheng Bank.