China's Central Bank Says It Seeks Yuan Stability Amid Reforms

  • Policy makers will strengthen and improve risk management
  • Bank to keep policy prudent and maintain moderate liquidity

China’s central bank reiterated that it will aim for stability in the yuan as it seeks to promote exchange-rate reform and maintain prudent monetary policy.

Policy makers also said they would "earnestly strengthen and improve risk management" to ensure financial stability and prevent market risks, the People’s Bank of China said in a statement after its routine quarterly monetary policy committee meeting. Monetary officials said they will keep moderate liquidity in the financial system, according to the panel’s fourth-quarter statement.

"It’s a reiteration of the PBOC’s stance that, given the weakness of the economy, it will keep policy accommodative," said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. "It makes sense because in the past two months we haven’t seen a significant change in the economic data so it’s OK to keep some continuity of policy."

The monetary policy committee, an advisory body led by PBOC Governor Zhou Xiaochuan, also reiterated that the central bank will use monetary policy tools flexibly, language that was also echoed this month by the nation’s top leaders. Monetary policy must be more “flexible” as leaders create “appropriate monetary conditions for structural reforms,” according to statements released at the end of the government’s Central Economic Work Conference last week.

The central bank last cut interest rates in late October, reducing the benchmark one-year lending rate to 4.35 percent from 4.6 percent, while also reducing reserve requirements for all banks, to keep the government on track to meet its 2015 growth target of about 7 percent for the world’s second-largest economy.

After a surprise devaluation of the yuan in August, the PBOC said this month it will use a basket of currencies to value the currency instead of linking it directly to the U.S. dollar.

Gross domestic product growth will slow from 6.9 percent this year to 6.5 percent next year, according to the median of economist estimates in a Bloomberg survey.

— With assistance by Kevin Hamlin, and Emma Dong

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