Monday, 8 May 2017

China forex chief says no intention of competitive currency devaluation

China has no intention and no need to carry out competitive currency devaluations, the head of the country's foreign exchange regulator said.

In a weekend piece in the Chinese magazine Modern Bankers, Pan Gongsheng said the People's Bank of China's supplying of liquidity to the market was to prevent excessive fluctuations of the exchange rate and prevent a "herd effect", to maintain market stability.

"China has no intention of raising competitiveness via currency devaluation. It does not have this wish, and it also does not have this need," Pan, who runs China's State Administration of Foreign Exchange, wrote.

China was working hard to raise the exchange rate's flexibility and to maintain its stability, he added.

This was good for the international community and would avoid negative spillover effects from a disorderly exchange rate adjustment or competitive devaluations by other currencies, Pan wrote.

Pan is also a vice governor of the People's Bank of China.

China's yuan is up just around 0.6 percent so far this year, having lost nearly 7 percent in 2016. In November, the yuan hit an eight-year low following Donald Trump's shock election as U.S. president.

In a Reuters poll last week, the yuan was forecast to weaken to 7.07 per dollar in a year.

Despite harsh rhetoric about China on the campaign trail, Trump has recently had warm words for his Chinese counterpart Xi Jinping, praising him for trying to rein in nuclear-armed North Korea.

Trump has also backtracked on his pledges as a candidate to label China a "currency manipulator" and impose steep tariffs on Chinese imports.

Speaking at a forum on Sunday organized by Hong Kong-based Phoenix Television, Chinese Vice Finance Minister Zhu Guangyao said that trade disputes between China and the United States should be resolved via "cooperative methods".

China and the United States need to strengthen fiscal and monetary policy coordination, he added, according to a report on the broadcaster's website.

China will also pay close attention to Trump's tax cut plan, Zhu said, without elaborating.

Last month, Trump unveiled a one-page plan proposing deep U.S. tax cuts that would make the federal deficit balloon if enacted.

China's foreign exchange reserves rose in April for a third straight month, beating market expectations, as capital controls and a pause in the dollar's rally helped staunch capital outflows.

The April rise is reassuring news for policymakers after the yuan steadied as U.S. President Donald Trump backed away from labeling China a currency manipulator, saying the dollar was "getting too strong" and would eventually hurt the U.S. economy.

Reserves rose $21 billion in April to $3.03 trillion, compared with an increase of $3.96 billion in March to $3.009 trillion.

The State Administration of Foreign Exchange said in a statement that the reserves rose due to basically balanced foreign exchange supply and demand and the appreciation of currencies against the dollar.

Looking ahead, the yuan would remain basically stable with cross-border capital flows becoming more balanced, which will further stabilize foreign exchange reserves, the regulator added.

Economists polled by Reuters had expected foreign exchange reserves to rise by $11.0 billion to $3.02 trillion in April.

China has tightened rules on moving capital outside the country in recent months as it seeks to support the yuan and stem a slide in its foreign exchange reserves.

It burned through nearly $320 billion of reserves last year but the yuan still fell about 6.5 percent against the dollar, its biggest annual drop since 1994.

The yuan's performance against the dollar has been steady in recent weeks after the dollar .DXY lost its upward momentum.

In March, China's central bank sold the smallest amount of foreign exchange since May 2016, supporting the government's assertions that capital flows were becoming more balanced.

Premier Li Keqiang said last month that market confidence in the yuan had significantly improved and the outside world had stable expectations for the yuan exchange rate.

The forex regulator said on Wednesday that China would improve macro-prudential management on cross-border flows to ward off potential risks and "optimize" diversification of foreign exchange reserves.

The Chinese currency is forecast to weaken to 7.07 against the dollar in a year, according to a Reuters poll of 60 foreign exchange strategists.

The U.S. Federal Reserve kept interest rates unchanged on Wednesday and downplayed weak first-quarter economic growth while emphasizing the strength of the labor market, a sign it was still on track for two more rate rises this year.

China's gold reserves rose to $75.02 billion at the end of April from $73.7 billion at end-March, data published on the People's Bank of China website also showed.

Reference: Ben Blanchard

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