China's move to bring down the Yuan last week could lead to similar adjustments, and China's currency is likely to move in both directions as the economy stabilizes, Ma Jun, chief economist at the central bank said on Sunday.
The People's Bank of China (PBOC) surprised the global markets by bringing down the yuan CNY=CFXS by nearly 2% last August 11. The PBOC called it a free-market reform but some saw it as the start of a long-term yuan depreciation to spur exports.
A more market-oriented pricing mechanism for the Yuan will help to avoid excessive deviation from the equilibrium level and significantly reduce the possibility of sudden fluctuations, Mr Ma said in an e-mailed statement on Sunday. The economy will probably grow about 7% this year, he said.
The yuan halted a three-day slide on Aug 14 following its first major devaluation since 1994 after the central bank said it will intervene to prevent excessive swings. Policy makers are trying to balance the need for financial stability with a desire for stronger exports and the yuan's inclusion in the International Monetary Fund's basket of reserve currencies.
"If we want to evaluate the yuan's mid-term trend, it's more important to analyze the fundamentals of the economy, which has shown signs of stabilization and recovery," Mr Ma said in the statement. "Even if the central bank needs to intervene in the market in the future, it could be either way." China's decision on Aug 11 to allow markets greater sway in setting the currency's level triggered the biggest selloff in 21 years and roiled global markets.
The current exchange rate is now more consistent with economic fundamentals, and there is no need to adjust it to boost exports, PBOC Deputy Governor Yi Gang said at a press conference on Aug 13. The central bank has exited regular intervention, and will will act when the market's volatility is excessive, Mr Yi said.
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