Beijing: China expanded efforts to steady the currency markets, with the central bank adding verbal support to the exchange rate after a week that saw it slip past a key level against the dollar.
The People’s Bank of China will work hard to keep the yuan stable against a basket of currencies, Deputy Governor Chen Yulu said at a conference in Beijing on Sunday, adding that the authority will improve the policy framework for the yuan’s offshore market and cross-border services.
Chen’s comments come after the PBOC fuelled speculation that it was defending a level of 6.7 per dollar by strengthening its daily reference rate even as a gauge of the greenback rose. This spurred speculation that the central bank isn’t sticking to its stated policy of following the direction of the market, which would have resulted in weaker fixings.
The signs of intervention come amid increasing pressure on the currency, with Goldman Sachs Group Inc. saying that the yuan’s declines affected sentiment and resulted in a significant pickup in outflows in June. The threat of capital flight unsettling financial markets is complicating China’s strategy of steadily weakening the yuan to combat a drop in exports as it looks to support growth in the world’s second-largest economy.
Market Recovery
The yuan advanced 0.9 per cent, the most since October, against a 13-currency trade-weighted basket in the five days through July 22. The currency traded onshore posted its first weekly advance against the dollar since early June, recovering earlier losses after dropping beyond 6.7 against the dollar for the first time since 2010.
Deputy Governor Chen addressed issues for the bond market as well, saying Sunday that the monetary authority will orderly push forward with the opening of financial markets, supporting quality issuers overseas to sell yuan bonds onshore and local issuers to sell yuan notes offshore.
He added that the nation will push forward with the second phase of the China International Payment System — a mechanism providing clearing and settlement services that was started in October last year — and enhance international monetary and financial-policy cooperation and coordination.
China should coordinate capital-account opening with exchange-rate reforms, and have a comprehensive monitoring of capital flows, according to a yuan internationalisation report released by the Renmin University of China and Bank of Communications Co. on Sunday. Chen was speaking at the release of the report.
