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Wednesday, August 12, 2015, 22:25

PBOC says capable of stabilizing yuan

By Xinhua

PBOC says capable of stabilizing yuan
This undated photo shows the People's Bank of China in Beijing. (Provided to China Daily)

BEIJING - The recent fluctuation of the yuan exchange rate is "within control" and the central bank is "fully capable" of stabilizing the market if necessary, a central bank economist said on Wednesday.

"The central bank is fully capable of stabilizing the exchange rate through direct intervention in the foreign exchange market to avoid herd mentality leading to irrational movements of the rate," economist Ma Jun with the People's Bank of China said in an interview with China Business News.

The comments came as the Chinese currency continued to fall on Wednesday after the central bank reformed the exchange rate formation system to better reflect the market.

On Wednesday, the central parity rate of renminbi, or yuan, weakened by 1,008 basis points, or 1.6 percent, to 6.3306 against the US dollar, narrowing from Tuesday's 2 percent, according to the China Foreign Exchange Trading System.

The central bank on Tuesday adjusted the exchange rate formation system so that it takes into consideration the closing rate of the inter-bank foreign exchange market on the previous day, supply and demand in the market and price movement of major currencies.

In a statement released earlier on Wednesday, the PBOC said the rate changes are normal, as it shows a more market-based system and the decisive role that the supply-demand relationship plays in determining the exchange rate.

"This may lead to potentially significant fluctuations in the short run but after a short period of adaptation the intra-day exchange rate movements and resulting central parity fluctuations will converge to a reasonably stable zone," the PBOC said.

Ma also said the shift is a one-off technical correction and should not be interpreted as an indicator of future depreciation.

A relatively robust economy, current account surplus and the internationalization of the yuan will help the currency remain stable, the PBOC said.

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