March 6, 2017 / 3:42 PM / 5 months ago

UPDATE 2-China to maintain exchange rate policy framework- c.bank deputy gov

3 Min Read

(Adds comments by policy adviser)

BEIJING, March 6 (Reuters) - China will stick to its managed floating exchange rate framework to keep the yuan currency basically stable, a deputy governor of the People's Bank of China (PBOC) said on Monday.

The central bank spent billions of dollars last year to slow the yuan's decline against a resurgent dollar. Not helping the currency's cause, a slowdown in the economy spurred investors to move their funds elsewhere, prompting the authorities to implement a series of measures to curb the outflow.

"We will maintain the framework of a managed float, which is based on supply and demand and the yuan's value against a basket of currencies," PBOC Deputy Governor Yi Gang told reporters on the sidelines of the annual meeting of parliament in Beijing.

While market forces play a decisive role, the yuan is a managed floating exchange rate, and in the process, China has kept the yuan basically stable at a reasonable and balanced level, Yi said.

The yuan shed about 6.5 percent of its value against the dollar last year. It then strengthened in early January and had been trading in a flat range, although its breach of the 6.9 per dollar level on Friday rekindled some depreciation expectations and triggered some corporate dollar buying on Monday morning.

"I cannot say the (yuan) depreciation will be bigger than last year, but I can say its fluctuations will be bigger this year than last year," said a policy adviser, who spoke on condition of anonymity.

Some analysts also said a subtle change in the language used to describe the yuan in Premier Li Keqiang's annual work report on Sunday had sparked some speculation that policymakers were now less willing to defend the Chinese currency.

A pledge to "keep the yuan stable at an appropriate and balanced level" seen in previous years' reports was missing.

Instead Li said: "The RMB (yuan) exchange rate will be further liberalised, and the currency's stable position in the global monetary system will be maintained."

The exchange rate has been a bugbear for U.S. President Donald Trump, who declared China the "grand champions" of currency manipulation in an interview with Reuters last month.

During his presidential campaign, Trump often accused China of keeping its currency artificially low against the dollar to make Chinese exports cheaper, "stealing" American manufacturing jobs.

In a commentary afterwards, the official Xinhua news agency said criticising China for manipulating its currency to prop up trade was a "major myth that has been circulating in Washington for quite a long time".

On Monday, the yuan firmed a tad as the dollar fell on profit-taking after Federal Reserve Chair Janet Yellen confirmed on Friday that the Fed was set to raise rates later this month.

Yi, asked whether China would raise interest rates this year, said the central bank would need to consider the health of the economy in any decision. (Reporting by Kevin Yao; Writing by Ryan Woo and John Ruwitch; Editing by Simon Cameron-Moore and Hugh Lawson)

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