UPDATE 1-China to deal calmly with yuan volatility - premier

Thu May 1, 2014 6:48am EDT

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BEIJING May 1 (Reuters) - China will not relent by loosening policy to shore up its economy or calm a volatile yuan, even though it has entered a "painful" phase of restructuring, Premier Li Keqiang wrote in remarks published on Thursday.

In an article published in the ruling Communist Party's influential journal Qiushi (Seeking Truth), Li repeated that his government was comfortable with a slowing economy as long as growth stayed within a "reasonable range".

Growth in China, the world's second-largest economy, slumped to its slowest in 18 months in the first three months of this year as government reform efforts and lacklustre demand for exports took their toll.

That has prompted some experts to speculate that China may loosen monetary policy more forcefully - such as reducing the amount of cash that banks hold at the central bank - to shore up the economy.

But Li said China needs fortitude in dealing with its cooling economy.

"We will stick to our convictions, and not dance to the frequent fluctuations in markets, not change policy because of divergent voices, and will persist in not expanding the budget deficit," he wrote.

"Even if there are short-term fluctuations in the currency market, we will face it calmly."

His remarks came as the yuan plumbed an 18-month low on Wednesday, hurt in part by traders' souring sentiment towards the currency as the economy sags.

Li made no reference to the yuan's weakness, stressing instead that his government would focus its energy on pursuing financial reforms.

Allowing private investors to set up financial institutions, freeing the interest rate market, and setting up a system to insure deposits will be prioritised were among this year's reforms, Li said.

Cutting government red tape, encouraging provincial governments to make public their annual budgets, deepening a reform of taxes, and better delineating the division of power and spending responsibilities between the central and local governments would be other areas of focus, he said. (Reporting by Koh Guiqing, Li Hui; and Ben Blanchard; Editing by Ron Popeski and Robert Birsel)

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