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China Pushes Back Against Yuan Slide, Reissues Stability Pledge

Published 07/03/2018, 03:01 AM
Updated 07/03/2018, 03:50 AM
© Reuters.  China Pushes Back Against Yuan Slide, Reissues Stability Pledge

© Reuters. China Pushes Back Against Yuan Slide, Reissues Stability Pledge

(Bloomberg) -- 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 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 percent against the dollar as the domestic economy slows and the nation slides closer to a trade war with the U.S. 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 (DE:CBKG) 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."

(Updates with more comments from PBOC’s Yi, economists comment.)

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.net;Miao Han in Beijing at mhan22@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, James Mayger, Jeffrey Black

©2018 Bloomberg L.P.

Latest comments

At the current foreign exchange of  UDS = CNY 6.59  ,we would not be a buyer of Chinese made plant and  machinery for our factory  because the pricing of such capital investment would be unattractive based on their quality relative to that of  European makes. In fact we have slowed our purchases of Chinese machinery over the past 4 years . The price inflation , wages inflation, labour shortages , high costs everywhere in the hotels, transport  , high speed trains, restaurant  food, shoes, and many more, have damaged the economics of buying from China . At USD=CNY 7.00 or lower, the market would begin to clear based on the current standard of quality. The  pricing in Chinese market for goods have been rising relentlessly for  4 years . That , without any material  corresponding improvement in quality.  So the PBOC would be better advised to let the Yuan  find it's real equilibrium level. I mean the level whcih we would be interested to  visit and buy real things from China.
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