Chinese central bankers vowed to keep their nation’s currency stable and to not deploy it as a weapon in the trade conflict with the U.S., helping the yuan reverse some of its recent plunge.
People’s Bank of China Governor Yi Gang said China will “keep the yuan exchange rate basically stable at reasonable and balanced level,” a repetition of standard language that helped stoke speculation that policy makers are prepared to take tougher actions to arrest the plunge in the currency.
Later Tuesday, Sun Guofeng, head of the central bank’s financial research institute, said that the currency’s decline isn’t the result of China deliberately weakening it to gain an advantage over the U.S, according to bloomberg.com
“Recently the yuan’s exchange rate has shown some weakness. This is entirely due to changes in market expectations as external uncertainties rise rather than intended guidance of the central bank, ” Sun said in exclusive comments provided to Bloomberg News. “China upholds multilateralism, globalization, free trade and rule-based international guidelines, and will not make the yuan’s exchange rate a tool to cope with trade conflicts.”
The yuan is the worst performing currency in Asia over the past three weeks, losing 3.7 percent against the dollar as the domestic economy slows and the nation slides closer to a trade war with the U.S. A failure to contain the tumble will feed speculation that officials are effectively depreciating the currency to defend against the effects of trade tariffs. The yuan erased losses to advance in onshore and overseas markets after Yi’s comments.
“The PBOC is sending a verbal warning and intervention that the recent slump in the yuan was too quick,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “In the short term, the yuan could strengthen as traders take profit from the recent slide. But if the market ignores the PBOC and keeps pushing the yuan weaker quickly, the central bank may conduct heavy intervention to send a stronger signal.”