The recent decline in the Chinese yuan was a product of market forces, said central bank Deputy Governor Yi Gang, addressing speculation that it was policy makers that engineered the depreciation.
Yi, speaking at a panel during International Monetary Fund meetings in Washington, also said officials will be “very cautious” introducing economic stimulus as growth slows.
The yuan, also known as the renminbi, lost a record 2.6 percent in the first quarter, after gaining 33 percent since 2005, sparking speculation the central bank deliberately weakened the currency to discourage speculators. Yi said the yuan weakened during a period when China’s economy slowed, its trade balance turned to a deficit and while the U.S. Federal Reserve reduced monetary stimulus.
“It’s basically a market movement,” Yi said today. “If the markets judge in any direction, that’s perfectly fine with me. Two-way fluctuation of the renminbi will be a normal phenomenon from now on.”
A government report today showed that China’s exports and imports unexpectedly fell in March. The economy probably grew 7.4 percent last quarter from a year earlier, on track for the slowest annual expansion since 1990, according to analysts surveyed by Bloomberg News in March.
Yi urged policy makers not to embark on large-scale economic stimulus to arrest the slowdown, echoing a comment made by Premier Li Keqiang today in the southern province of Hainan.
He said it’s natural for the Chinese economy to slow from a double-digit pace as policy makers shift the growth model to more consumption driven and as the base of the economy grows. It is the quality, not the speed, of growth that matters, he said.
“If you believe in market mechanism, then any kind of stimulus package should be very cautious,” Yi said.
Policy makers can accept a growth rate “a little bit” below the government’s target of 7.5 percent this year, he said.
“They said around 7.5 percent. A little bit more or a little bit less, it’s all acceptable. It’s not a big deal,” he said.