Asia’s policy makers pointed to the potential benefits of the biggest devaluation of the Chinese yuan in two decades, playing down the risk of a possible currency war and a hit to their countries’ exports.

A weaker yuan should help the world’s second-biggest economy in the longer term, benefiting regional trade, Bank of Thailand Assistant Governor Chantavarn Sucharitakul told reporters on Tuesday. The positive spin echoed reactions from the Philippines to South Korea, while an Indonesian central bank official flagged concern over a weaker Chinese currency.

China’s decision sparked a tumble in emerging-market currencies, stocks and commodities, while heightening the risk of competitive devaluations as global demand wanes and policy makers look for ways to regain competitiveness. The devaluation came days after a report highlighted a slump in Chinese exports.

“They’re looking at the policy positives,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “There are downside risks to such a policy, which is not in the interest of any central banker in the region now to jump in and flag as a big red flag yet, lest they be construed as someone priming for a tit-for-tat fight on the FX space.”

The devaluation looks to be part of an effort by the People’s Bank of China to move toward a more market-based foreign exchange system, according to an official at the Bank of Korea in Seoul. The move indicates an effort to narrow the gap between the rate set by the PBOC and the level sought by the market, said the official, who asked not to be identified because he isn’t authorized to speak publicly on the matter.

China’s central bank Tuesday cut the daily reference it sets for the yuan by 1.9 percent, triggering the yuan’s biggest one-day drop since China unified official and market exchange rates in January 1994.

Regional Declines

Chinese authorities had been propping up the yuan to deter capital outflows, protect foreign-currency borrowers and make a case for official reserve status at the International Monetary Fund. Tuesday’s announcement suggests policy makers are placing a greater emphasis on efforts to combat an economic slowdown and reduce the government’s grip on the financial system.

“This strategy to weaken currency should be viewed as part of monetary easing from external trade perspective in nominal terms, which Indonesia cannot afford,” Nanang Hendarsah, a director at Bank Indonesia, said in a text message in response to questions about the yuan devaluation.

The move triggered declines in the currencies of Australia, South Korea and Singapore, whose currency fell the most since 2011. The MSCI Asia Pacific Index dropped 1 percent as a gauge of Hong Kong-listed Chinese companies reversed gains.

Most Vulnerable

The Korean won, Taiwanese dollar, and Singapore dollar will likely be among the most vulnerable because of their linkages to the yuan, according to Mitul Kotecha, head of Asia Pacific foreign-exchange strategy at Barclays Plc in Singapore.

Initial market reaction was due to the weakness of regional currencies including the Philippine peso, Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a mobile-phone message.

“Should the adjustment in the yuan, however, become effective in supporting Chinese exports in the near-term, that could help sustain regional trade and in turn, help support global growth,” Tetangco said.

The PBOC said Tuesday that a strong yuan puts pressure on exports and cited a high effective exchange rate as a factor behind the devaluation. July’s export slump was deeper than economists predicted, while the nation’s index of producer prices declined 5.4 percent, reports from this weekend showed.

“It’s not that China’s economy has kind of hit a wall or growth has slowed sharply all of a sudden, I think it’s more that they’ve decided that the currency needs to be a little weaker,” said Tim Condon, head of Asia research in Singapore at ING Groep NV. “If this is the beginning of a policy of creeping depreciation of the RMB then it’s going to be contagious for the rest of the region.”