China pushes back against yuan slide, pledges stability

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CHINA said it will keep the yuan stable. – REUTERS

CHINA will keep the currency stable at an equilibrium level, and the central bank will maintain a prudent, neutral policy stance, according to People’s Bank of China (PBoC) Governor Yi Gang.

Using standard language to describe the stance on the currency, Yi said the central bank will “keep the yuan exchange rate basically stable at reasonable and balanced level.” That and comments by another PBoC official earlier on Tuesday are the first clear statement on the currency by the central bank since the yuan started weakening in mid-June.

“Recently the foreign exchange market has shown some volatility and we’re paying close attention to that,” Yi said in a statement responding to a request by the China Securities Journal posted on the central bank’s website. The fluctuation is “mainly due to factors such as a stronger dollar and external uncertainties, and there’s been some pro-cyclical behavior,” he said.

The yuan is the worst performing currency in Asia over the past month, losing more than 4% against the dollar as the domestic economy slows and the nation slides closer to a trade war with the US The currency strengthened immediately after the comments were reported, having earlier weakened beyond 6.7 to the dollar.

“The PBoC is sending a verbal warning and intervention that the recent slump in the yuan was too quick,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “In the short term, the yuan could strengthen as traders take profit from the recent slide. But if the market ignores the PBoC and keeps pushing the yuan weaker quickly, the central bank may conduct heavy intervention to send a stronger signal.”

China’s financial risks are controllable, Yi said, adding that “China has a managed floating currency exchange rate mechanism which is based on market supply and demand and with reference to the basket of currencies.” — Bloomberg