China's cen­tral bank chief says no ba­sis for fur­ther yuan de­val­u­a­tion

The Pak Banker - - FRONT PAGE -

China's Cen­tral Bank Gov­er­nor Zhou Xiaochuan said there was no ba­sis for fur­ther de­cline in the value of the yuan and dis­missed the need for stricter cap­i­tal con­trols to stem the out­flow of for­eign ex­change, ac­cord­ing to an in­ter­view pub­lished Satur­day in the main­land fi­nan­cial mag­a­zine, Caixin, lo­cal me­dia re­ported. As­sur­ing the pub­lic that the ex­change rate was ba­si­cally sta­ble against a bas­ket of cur­ren­cies, and the cap­i­tal out­flows seen in re­cent times were nor­mal, Zhou said China has am­ple for­eign ex­change hoards to ful­fill its trade com­mit­ments and to de­fend the sta­bil­ity of the Ren­minbi, South China Morn­ing Post re­ported. "It is nor­mal for for­eign re­serves to rise and fall as long as the fun­da­men­tals face no prob­lems," Zhou said in his first pub­lic com­ments on the bank's pol­icy since it de­val­ued the yuan by 2 per­cent in Au­gust. China's for­eign-ex­change re­serves shrank in Jan­uary to their low­est level since 2012, as the cen­tral bank con­tin­ues to sell large sums of U.S. dol­lars to prop up its cur­rency - cur­rently at a 5-year low. Chi­nese fi­nan­cial mar­kets will open Mon­day af­ter the week-long Lu­nar New Year hol­i­day. "Zhou's re­marks are timely, fill­ing a void in the mar­ket's un­der­stand­ing of China's strat­egy on the ex­change rate at a crit­i­cal mo­ment," Tom Or­lik, Bloomberg In­tel­li­gence's Chief Asia Econ­o­mist, told Bloomberg.

Zhou also said that China has no in­cen­tive to de­pre­ci­ate the cur­rency to boost net ex­ports. Ac­cord­ing to him, the coun­try is com­mit­ted to mak­ing progress with ex­change-rate re­form dur­ing its 13th Five-Year Plan, re­ly­ing more on the mar­ket to de­ter­mine prices. Zhou also warned that the bank will not let "spec­u­la­tive forces dom­i­nate mar­ket sen­ti­ment." Ac­cord­ing to es­ti­mates from Bloomberg In­tel­li­gence, cap­i­tal out­flows from China in 2015 amounted to about $1 tril­lion last year - more than seven times of the money that left the coun­try in 2014. China's cen­tral bank has in­creased its in­ter­ven­tion in the cur­rency, stock and debt mar­kets in its ef­forts to stem the ex­o­dus of cap­i­tal. In De­cem­ber, the bank stepped in to the Hong Kong cur­rency mar­ket af­ter the yuan's off­shore ex­change rate sank 2.9 per­cent lower than the ex­change rate in the main­land.

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