China to cope with yuan swings

China has ample policy tools to cope with yuan fluctuations and the country is able to keep the currency basically stable, a central bank vice governor said in remarks published on Thursday.

The yuan fell against the dollar on Thursday to its lowest level in almost six months as investors worried about the impact of the Sino-U.S. dispute on the country’s tech sector. The currency has lost more than 2.6 per cent this month.

“At present, although there is some occasional overshooting in the exchange rate, the market situation is stable,” the vice governor, Liu Guoqiang, told the Financial News, a newspaper run by the central bank, in an interview.

“Nothing has gone wrong, and (we) will not allow anything to go wrong”.

Liu said economic fundamentals were sound, foreign exchange reserves ample, while the country’s debt-to-GDP ratio was basically stable and fiscal and financial risks were under control.

The central bank has accumulated rich experience in dealing with exchange rate fluctuations in recent years, Liu said.

“We have sufficient reserves of policy instruments,” he said.

Liu’s comments added to those of other officials in a verbal campaign that began earlier this week when Pan Gongsheng, another vice central bank governor, said China will keep the yuan exchange rate at a reasonable and balanced level. The central bank will further strengthen macro prudential management to stabilise market expectations, Liu said.

Sources have told Reuters the central bank will stop the yuan weakening beyond 7-per-dollar in the near-term.

While a weaker yuan could support Chinese exporters, a significant decline would be needed to offset the impact of higher US tariffs.

Reuters