‘China won’t use yuan as tool to deal with trade war’

Gulf Times Business - - BUSINESS -

China won’t use its cur­rency as a tool to deal with trade con­flicts, cen­tral bank gov­er­nor Yi Gang said, as a tar­iff war be­tween the US and the world’s No 2 econ­omy in­ten­si­fies.

“China will con­tinue to let the mar­ket play a de­ci­sive role in the for­ma­tion of the RMB ex­change rate,” Yi said in a state­ment to the In­ter­na­tional Mone­tary and Fi­nan­cial Com­mit­tee, which was posted on the IMF’s web­site yes­ter­day. “We will not en­gage in com­pet­i­tive de­val­u­a­tion, and will not use the ex­change rate as a tool to deal with trade fric­tions.”

He added China will con­tinue to push ahead with the mar­ket-based re­forms of its in­ter­est rate and ex­change rate sys­tems, and keep the cur­rency “broadly sta­ble at an adap­tive equi­lib­rium level.”

The Chi­nese cur­rency has tum­bled more than 9% against the dol­lar in the past six months.

Still, pres­sure on the yuan eased in re­cent days amid re­ports US Pres­i­dent Don­ald Trump and Chi­nese Pres­i­dent Xi Jin­ping plan to meet in Novem­ber, and the US Trea­sury Depart­ment is be­ing ad­vised not to name China a cur­rency ma­nip­u­la­tor.

The relief may be tem­po­rary. Looser do­mes­tic mone­tary pol­icy, con­cerns about eco­nomic growth and a fur­ther es­ca­la­tion in the trade war will con­tinue to weigh on the yuan, push­ing it closer to the psy­cho­log­i­cally im­por­tant level of 7 per dol­lar, which an­a­lysts pre­dict to hap­pen by the mid­dle of next year.

China’s econ­omy has sus­tained steady growth in 2018, and over­all risks are in con­trol, Yi said, ac­cord­ing to the IMF state­ment.

Pol­icy mak­ers in Bei­jing have been try­ing to stim­u­late growth without caus­ing a debt blowout as trade ten­sions com­pli­cate the out­look for an econ­omy that’s al­ready slowed mod­er­ately be­cause of a do­mes­tic fi­nan­cial cleanup.

That’s hurt in­vestor sen­ti­ment with the na­tion’s bench­mark stock in­dex stay­ing in a bear mar­ket.

Mone­tary pol­icy will “re­main neu­tral with more fo­cus on guid­ing ex­pec­ta­tions,” Yi said.

Au­thor­i­ties will adopt proac­tive ad­just­ment and fine-tun­ing to en­sure that the mone­tary stance will re­main ap­pro­pri­ate amid a chang­ing eco­nomic and fi­nan­cial land­scape, he said.

Yi Gang, gov­er­nor of the Peo­ple’s Bank of China, speaks at a press con­fer­ence in Bei­jing. “We will not en­gage in com­pet­i­tive de­val­u­a­tion, and will not use the ex­change rate as a tool to deal with trade fric­tions,” Yi said.

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