China’s PBoC Governor Yi Gang tried to talk down recent Yuan depreciation despite having USD/CNH nearing the psychological important 7 level. Yi insisted that “the Yuan’s volatility is normal” and its rate is at a “reasonable and equilibrium level”. And, in spite of recent measures in stabilizing the markets, Yi also insisted that PBoC is having a “neutral” monetary policy stance. He said “So if you look at the broad money, if you look at the interest rate and you look at monetary conditions, basically you can have the conclusion that we have a prudent and neutral stance monetary policy.”
Regarding trade war, Yi said “downside risks from trade tensions are significant.” But he’s confidence that the PBoC has “plenty of monetary instruments in terms of interest rate policy, in terms of required reserve ratio.” And, PBoC has “plenty of room for adjustment, in case we need it”. Besides, he’s also confidence that China is on track to meet its growth target of 6.5% in 2018 and “maybe a little bit more”.
Yi also pledged in a statement that “China will continue to let the market play a decisive role in the formation of the RMB exchange rate”. And, we will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions.”