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Zhou: no basis for persistent yuan depreciation

By Leng Cheng | February 26, 2016, Friday | Online Edition

China's central bank governor said today that the country still has room for monetary policy and multiple policy instruments to address possible downside risks, indicating further measures could be taken in guiding the money market.

"We should make policies with more consideration of spillover effect to other global markets, but that doesn't mean we should be overcautious about new measures and reform," Zhou Xiaochuan, governor of the People's Bank of China, said in a media conference before finance ministers from the G20 group of countries meet in Shanghai later today.

The central bank described its current monetary policy as "prudent and relatively accommodative" in a separate statement distribute before Zhou's speech, and said that China is further improving its monetary policy framework form quantitative measures to more price-based measures.

Fiscal policy will be "more proactive", including reducing taxes and increasing fiscal deficits temporarily, the statement added.

In respond to expectations over China's currency exchange rate and a record capital outflow, Zhou reiterated that "there is no basis for persistent yuan depreciation" and the decline of China's foreign reserves is only a period of overshooting.

"Market is sometimes more influenced by short-term factors. However, the central bank takes a long-term view of the movements of the yuan’s exchange rate will focus on economic fundamentals," said Zhou. "As long as our economic fundamentals are sound and our exchange rate is around equilibrium level, market expectation over the country's foreign reserves will become more rational."

Zhou added that China won't trigger competitive depreciation to boost export.

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