China’s central bank talks up the yuan against US dollar ‘uncertainties’
PBOC may intervene before dollar-yuan rate breaks key point, say analysts
China’s central bank stepped in on Sunday night to provide “forward guidance” support for the Chinese currency by talking up the yuan against the US dollar.
In an apparent move to ease market concerns over weakening of the yuan and capital flight from China, Yi Gang, a deputy governor of the People’s Bank of China, said in an interview with Xinhua that prospects for the US dollar are uncertain but the yuan is a “stable and strong” currency and its depreciation against the dollar was less than that of the Japanese yen or the euro.
Yi’s comments indicated the PBOC might intervene in the foreign exchange market to support the yuan before the dollar-yuan rate broke the key level of 7, as rapid depreciation of the yuan and capital exodus could mutually reinforce each other, analysts said. China has already burnt through more than US$800 billion of forex reserves in the past two years to prevent a free fall of the yuan exchange rate.
“Yi’s comments were set to call for market rationality, trying to persuade market participants not to rush to the US dollar,” said Tan Yaling, head of the China Forex Investment Research Institute.
In case the market didn’t listen, the central bank was ready to upgrade its capital account control in “a flexible and dynamic way”, Tan said.