China central bank chief seeks to reassure on yuan, growth

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Shanghai, Feb 26: 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 today 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.

Yuan

"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."

The Chinese economy grew 6.9 per cent 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 organised 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.

Beijing "will maintain prudent financial policy in a flexible and appropriate way", Zhou added. 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 AFP.

"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.

Chinese stocks were higher by the break after Zhou's comments, with the benchmark Shanghai Composite Index rising 0.43 per cent, having plummeted more than six percent on Thursday.

AFP

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