SHANGHAI: There is no reason for China’s yuan currency to keep falling and Beijing has more room to boost the world’s second-largest economy, the governor of its central bank said on Friday as he sought to reassure markets.
The comments by Zhou Xiaochuan, head of the People’s Bank of China (PBoC), in Shanghai came ahead of a meeting of finance ministers from the world’s top 20 economies in the city, China’s commercial hub.
“There is no basis for persistent renminbi depreciation from the perspective of fundamentals,” Zhou said, using another name for the currency.
“Short-term market volatility will give way to economic fundamentals. The market is sometimes more influenced by short-term factors.”
China’s economy grew 6.9 percent last year, the slowest rate since 1990, and its weakening has been a driver of slumping commodity prices and one of the factors behind global stock market turmoil this year.
But Zhou told a conference organized by the Institute of International Finance: “The fundamentals of China’s economy remain strong.”
Beijing has taken a series of steps to try to boost growth, with six interest rate cuts since November 2014 and multiple reductions in the amount banks must keep in reserve, along with targeted spending increases.
“China still has some monetary policy space and monetary policy tools to address potential downside risk,” Zhou said in a possible signal of more such moves, adding that fiscal and structural steps should also be used.
Beijing “will maintain prudent financial policy in a flexible and appropriate way,” Zhou said.
The bank added in a statement that its stance was “prudent and slightly easing.”
Many analysts have been expecting Beijing to take more measures to boost the economy.
“The reserve requirement ratio is quite high,” Liu Ligang, China chief economist at ANZ Research, told Agence France-Presse. “And the interest rate gap compared with other countries is quite big, so the space for monetary policy steps for China is very, very big.”
The PBoC injected 300 billion yuan ($46 billion) into the financial system on Friday as part of its regular operations to boost liquidity.
Shanghai stocks closed higher after Zhou’s comments, with the benchmark Shanghai Composite Index rising 0.95 percent, having plummeted more than 6 percent on Thursday.
China’s Communist authorities keep a tight rein on the yuan, only allowing it to rise or fall by 2 percent on either side of a daily fix set by the central bank.
In January, Beijing guided the unit down 1.4 percent by setting the rate lower for eight consecutive sessions—a move that raised worries of a creeping devaluation.
China adjusted the yuan down nearly 5 percent over a week in mid-August, spurring fears it was pursuing a currency war to help boost its flagging overseas sales.
“We will not resort to competitive devaluations to boost our advantage in exports,” Zhou insisted at a PBoC briefing Friday.
The central rate was set fractionally weaker on Friday, at 6.5338 yuan to the dollar, data from the China Foreign Exchange Trading System showed.
Yuan depreciation had a major impact on the global economy and was likely to come up at the G20 meeting in Shanghai, said Liao Qun, chief economist at Citic Bank International in Hong Kong.
Zhou’s comments could not completely soothe the market, he said, but added: “The repeated emphasis helps to give the market some relief, though expectations for yuan depreciation will continue.”
Capital has been flowing out of China due to worries about the flagging growth, causing the currency to weaken—which in turn drives withdrawals.
The country’s foreign exchange reserves have fallen to $3.2 trillion, their lowest level in more than three years, the central bank said this month, as Beijing sells dollars to stop the yuan from depreciating further.
In a separate statement, the PBoC said Friday that China’s foreign exchange reserves, the world’s largest, will be “kept around an appropriate and reasonable level.”
“The decline of reserves during the adjustment process is normal and consistent with the ongoing economic restructuring and a more balanced growth model,” it said.
Beijing is looking to move its economic model away from one driven by investment and exports to consumer demand, which it hopes will produce more sustainable albeit slower growth, but the transition is proving bumpy.