March 8, 2017 / 10:51 AM / 7 months ago

China to keep yuan broadly stable, allow more fluctuations

BEIJING (Reuters) - China will maintain stability in its yuan currency while allowing more two-way fluctuation to reflect changes in supply and demand, the operator of its foreign exchange trading platform said on Wednesday.

100 Yuan notes are seen in this illustration picture in Beijing November 5, 2013. REUTERS/Jason Lee/Files

The comments from the China Foreign Exchange Trade System (CFETS), which falls under the central bank, follows speculation that policymakers may be less willing to defend the Chinese currency.

A subtle change in the language used to describe the yuan in Premier Li Keqiang’s annual work report on Sunday had sparked that speculation.

But, deputy central bank governor Yi Gang has since said that China will stick to its managed floating exchange rate framework to keep the yuan currency basically stable.

A statement by CFETS also held little prospect for major change.

“The renminbi exchange rate will continue to be basically stable at a reasonable and balanced level, and its flexibility and two-way fluctuations will increase based on changes in the international currency market and market supply and demand,” CFETS said on its website.

It noted that China faces global uncertainties due to policies of U.S. President Donald Trump, expectations for an increase in U.S. interest rates, and possible “black swan” events.

“But the domestic economy is showing more positive changes and bright spots. Fundamental factors will continue to support the renminbi as a stable and strong currency,” it said.

The trade-weighted CFETS RMB index, which was unveiled in December 2015, fell 0.4 percent in February, the CFETS said.

The yuan gained about 0.5 percent against the dollar so far this year, following a 6.5 percent drop in 2016 - its biggest annual fall since 1994.

Data on Tuesday showed China’s foreign exchange reserves unexpectedly rose for the first time in eight months in February, rebounding above $3 trillion as a regulatory crackdown and a steadying yuan helped staunch capital outflows.

Reporting by Beijing Monitoring Desk and Kevin Yao; Editing by Simon Cameron-Moore

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