[BEIJING] China's central bank has stopped "regularly" intervening in the foreign exchange market but allowed it could still conduct "effective management" of the yuan in cases of extreme volatility, bank officials said on Thursday.
People's Bank of China (PBOC) Vice-governor Yi Gang, who also runs the State Administration of Foreign Exchange, was asked at a news conference whether the central bank had intervened behind closed doors to halt the currency's slide on Wednesday. "The central bank has already withdrawn from regular intervention," Mr Yi said.
But he added that the central bank will implement "effective management" of the exchange rate in case of external shocks or extreme currency volatility.
China's central bank stunned global markets on Tuesday by suddenly allowing the currency to fall by nearly 2 per cent after a run of poor economic data. It fell again on Wednesday, sparking market fears that Beijing was intent on a much deeper devaluation which could destabilise the global economy.
However, the PBOC now appears to be moving to stem the slide and calm jittery markets.
Trading sources said that major state banks had been buying up yuan and selling off dollars to prop up the currency, causing the exchange rate to recover sharply in the last few minutes of trade on Wednesday.
Assistant PBOC governor Zhang Xiaohui said that the recent decline of the yuan had released "accumulated" depreciation pressure of around 3 per cent, adding that loosening monetary policy has added to downward pressure on the exchange rate.
Mr Zhang said the yuan could return to appreciation in the future.
The officials' comments came after the bank distributed an official statement in which it said there is no basis for further depreciation in the yuan given strong economic fundamentals, but that it will increase monitoring of "abnormal" cross-border flows.
The officials said that reports predicting a decline of 10 per cent were "unfounded" and that there was no need to adjust the exchange rate to support exports.
Reuters reported on Wednesday that the central bank was under pressure from factions within the government to deeply devalue the yuan in order to support struggling exporters.
Chinese steelmakers, suffering from endemic overcapacity and weak demand at home, have already leapt to cut prices to boost offshore demand.
Many analysts see the yuan depreciating further this year.