China FX regulator expects more stable foundation for yuan after party congress

BEIJING (Reuters) - China’s foreign exchange regulator said on Wednesday he expects yuan exchange rates to have a more stable foundation after the 19th Communist Party Congress, amid market expectations of a move to widen the yuan’s daily trading band.

FILE PHOTO: A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration/File Photo

The central bank has “basically exited” from its regular yuan intervention as the currency has recently become more stable said Pan Gongsheng, head of the State Administration of Foreign Exchange.

“We can also see that the exchange rate is market-driven,” said Pan, who is also a vice central bank governor, speaking on the sidelines of the Chinese Communist Party Congress that started on Wednesday.

Pan reiterated the long-held stance that authorities will enhance the yuan’s flexibility while keeping the currency basically stable, when asked by reporters on whether the central bank would widen the yuan’s trading band.

“Some technical actions will be carried out under this basic principle,” he said without elaborating.

Policy sources have told Reuters that the central bank is considering a widening of the yuan’s trading band after the Communist Party Congress, a largely cosmetic move that would burnish its reform credentials as official policy focuses on reducing debt.

Currently, the yuan is allowed to rise or fall 2 percent against the dollar from the daily mid-point rate set by the central bank.

The yuan has gained about 5 percent against the dollar so far this year.

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

China’s curbs on capital outflows and the adoption of an undisclosed “counter-cyclical factor” earlier in May have helped support the yuan, but raised questions about its commitment to opening up the currency.

Pan also said the central bank will stick to its prudent and neutral monetary policy but did not give further details.

Reporting by Ma Rong, Hou Xiangming and Beijing Monitoring Desk, Writing by Kevin Yao; Editing by Eric Meijer and Sam Holmes