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The People’s Bank of China’s (PBOC) Governor Yi Gang reaffirmed a pledge to make the yuan exchange rate more flexible, while vowing to improve the monetary policy.
The central bank will keep the yuan basically stable at a reasonable equilibrium level, Yi reiterated in a meeting held to study the Communist Party’s twice-a-decade congress, according to a statement published by the central bank.
Yi also pledged to safeguard the currency’s stability and facilitate economic growth. The PBOC will work to build a modern central bank system, a critical task set out by the party congress, he said.
The PBOC has taken a cautious approach with monetary easing this year, as it relied more on directives and innovative tools to spur bank lending and targeted stimulus for sectors such as property and small businesses. Its easing stance, in contrast with the Federal Reserve’s aggressive interest rate hikes, has pushed the yuan to the lowest level since 2007.
The PBOC will deepen financial reforms to enhance financial sector’s ability to serve the real economy, according to Yi. He also vowed to enhance financial regulation and strengthen the system for protecting financial stability, in order to safeguard economic security.
China Tacitly Guides Yuan Weaker
China is widening the scope for the yuan to weaken through its daily fixings, a move that hasn’t sparked a selloff as the currency is buoyed by speculation over a relaxation of its Covid-Zero policy.
The PBOC cut its daily reference rate for a fifth session, which would allow the yuan to drop to a 15-year low of 7.4 per dollar within its daily trading band. That didn’t happen even after the top health body reaffirmed a Covid Zero stance after this week’s speculation.
Yuan traders have been parsing PBOC’s fixings to gauge support from authorities for the beleaguered currency. It sold off after the central bank ended a string of steady yuan daily reference rate following the conclusion of a key leadership summit.
The PBOC has been setting stronger-than-expected yuan fixings since August to support a currency battered by a widening rate gap with the US and domestic growth concerns. The rate was set an unprecedented 950 pips stronger than estimates on October 20, during the twice-a-decade party congress, before the gap narrowed to 461 pips.
—Bloomberg