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China central bank says capable of stabilizing yuan

Updated: Aug 13,2015 7:43 AM     Xinhua

BEIJING — The recent fluctuation of the yuan exchange rate is “within control” and the central bank is “fully capable” of stabilizing the market if necessary, a central bank economist said on Aug 12.

“The central bank, if necessary, is fully capable of stabilizing the exchange rate through direct intervention in the foreign exchange market to avoid herd mentality resulting in irrational movements of the rate,” economist Ma Jun with the People’s Bank of China told reporters.

In addition to China’s economic fundamentals that will underpin a stable currency, the country’s substantial foreign exchange reserve, the world’s largest at $3.7 trillion, will make it better placed to stabilize the rate in the near term, Ma noted.

His comments came as the Chinese currency continued to fall on Aug 12 after the central bank changed the exchange rate formation system to better reflect the market.

The central parity rate of renminbi, or yuan, weakened by 1,008 basis points, or 1.6 percent, to 6.3306 against the US dollar, narrowing from 2 percent on Aug 11.

The central bank on Aug 11 adjusted the exchange rate formation system so it now takes into consideration the closing rate of the interbank foreign exchange market on the previous day, as well as supply and demand in the market, and price movement of major currencies.

In response to doubts that the yuan rate would lead to competitive depreciation of other currencies in Asia, Ma said China “does not have the intention nor the need” for initiating such a move.

The economist said China’s weak exports data in June, which slid 8.3 percent from a year ago, should not be over-interpreted as factors such as a high comparison base also played a role. As the world economy recovers, exports will gradually pick up in the latter half of the year.

That, along with increasing domestic demand on the back of pro-growth policies, will put China on track to deliver its 7-percent growth target.

“From this prospective, China does not have the need to start a currency war to gain advantage,” Ma stressed, adding the yuan’s current rate is “near equilibrium”.