China Vows Stability and More Flexibility for Yuan

(Beijing) – China will keep its currency stable while allowing more fluctuation, the country’s monetary authority said amid speculation that China may tolerate further weakening of the yuan.

China will “maintain the broad stability of the yuan exchange rate at a reasonable equilibrium level,” while “allowing more two-way fluctuation to reflect market supply and demand,” according to a statement published Wednesday by the China Foreign Exchange Trade System (CFETS), the central bank’s foreign exchange trading platform operator.

The CFETS statement echoed deputy central bank Governor Yi Gang’s recent reiteration that China would ensure stability of the currency.

“We will never devalue (the yuan) to promote exports, will never stage a currency war,” Yi said Mar. 4. “Our overall direction is to keep the exchange rate basically stable within a reasonable range.”

Earlier, a subtle expression change in a keynote speech delivered by Premier Li Keqiang at the annual meeting of national legislators and political advisers sparked speculation that Chinese policymakers might allow more currency fluctuation amid rising uncertainty in global trade.

In his speech, the premier dropped a pledge he made in a similar speech last year to “ensure that the yuan remains basically stable at an appropriate level.” Instead, the premier said this year that China would “maintain the stability of the yuan in the global monetary system.”

China registered a $9.15 billion trade deficit last month, the first since February 2014, as imports surged on soaring commodity prices while exports declined.

China’s domestic economy is showing more positive changes and bright spots, the CFETS said in its statement. Despite uncertainties related to U.S. President Donald Trump’s policies, the Federal Reserve’s possible rate hikes and other potential and unpredictable global events, the yuan will remain stable and strong as economic fundamentals improve at home, the CFETS said.

The central bank set the yuan’s central parity rate at 6.9032 per U.S. dollar on Wednesday, the lowest since Jan. 12, and down by 75 basis points from the previous day. The trade-weighted CFETS index, which tracks the yuan’s value against 24 foreign currencies, fell 0.4% in February, the CFETS said.

Contact reporter Han Wei (weihan@caixin.com)