China to maintain exchange rate policy framework

[BEIJING] China will stick with its current exchange rate policy framework and policy for managing capital flows, based on currency supply and demand and the yuan's value against a basket of currencies, a deputy governor of the People's Bank of China said on Monday.

China has kept the yuan basically stable at a reasonable and balanced level, Deputy Governor Yi Gang told reporters on the sidelines of the annual meeting of parliament.

The yuan shed about 6.5 per cent of its value against the US dollar last year as the greenback surged and questions hung over the slowing Chinese economy, prompting the government to adopt measures to stem capital outflows.

The currency strengthened in early January and had been trading in a flat range, although its breach of the 6.9 yuan per US dollar level on Friday rekindled some depreciation expectations and triggered some corporate US dollar purchases on Monday morning.

Some analysts also said a subtle change in the language used to describe the yuan in Premier Li Keqiang's annual work report on Sunday had sparked some speculation that policymakers were now less willing to defend the Chinese currency.

A pledge to "keep the yuan stable at an appropriate and balanced level" seen in previous years' reports was missing.

Instead Mr Li said: "The RMB (yuan) exchange rate will be further liberalised, and the currency's stable position in the global monetary system will be maintained".

On Monday, the yuan firmed a tad as the dollar dipped after Federal Reserve Chair Janet Yellen's speech on Friday saying the Fed was set to raise rates later this month, but the yuan's gains were capped by some corporate dollar purchases.

The exchange rate has been a bugbear for US President Donald Trump, who declared China the "grand champions" of currency manipulation in an interview with Reuters last month.

During his presidential campaign, Mr Trump often accused China of keeping its currency artificially low against the US dollar to make Chinese exports cheaper, "stealing" American manufacturing jobs.

In a commentary afterwards, the official Xinhua news agency said criticising China for manipulating its currency to prop up trade was a "major myth that has been circulating in Washington for quite a long time".

When asked whether China's central bank would raise interest rates this year, Mr Yi said it would need to consider the health of the Chinese economy in any decision.

REUTERS