March 21, 2015 / 5:44 AM / 5 years ago

Yuan level appropriate, reflects fx supply, demand: China central bank

BEIJING (Reuters) - The current level of China's yuan CNY=CFXS is appropriate because it reflects foreign exchange supply and demand and economic fundamentals, a top central bank researcher said on Saturday, playing down talk of suspected official intervention.

A clerk counts Chinese 100 yuan banknotes at a branch of China Construction Bank in Nantong, Jiangsu province December 2, 2014. REUTERS/China Daily

On Friday, the yuan ended its best week since 2007 after a rush of dollar sales over the past few days by major state-owned banks, possibly acting on behalf of the central bank.

Lu Lei, head of the research bureau at the People’s Bank of China, reiterated the policy goal of keeping the yuan “basically stable on a reasonable and balanced level”.

“We believe the current level is appropriate, it reflects the situation of the real economy, reflects the surplus and shortfall in global capital, also reflects money supply of our country and other countries,” he told reporters on the sidelines of a forum.

The yuan’s jump of close to 1 percent during the week followed months of weakness. Many forex traders suspected the turnaround was engineered by the central bank to deter speculators who had been betting on further yuan falls.

The yuan is currently allowed to trade within a range 2 percent above or below the official fixing on any given day. Before this week, the spot rate had been hugging the weakest side of that band since January.

Many analysts believe the central bank is playing a balancing act on the yuan, because allowing it to weaken could help support the export sector. Any sharply depreciation could undermine efforts to internationalize the yuan.

Lu also said the government would conduct more experiments in making the yuan convertible on the capital account, but would take steps to manage risks from cross-border capital flows.

Yi Gang, a deputy central bank governor who is also the country’s top foreign exchange regulator, said China would soon allow Chinese individuals to invest in overseas markets using the local currency through a pilot program.

“We are studying plans to allow individuals to invest overseas,” he told the forum. Yi said such an investment scheme would be launched “in the near future”.

Shanghai, China’s financial hub, hopes to allow individuals to invest in overseas markets this year through a trial scheme to be launched in its free trade zone, a city government website has reported.

The new Qualified Domestic Individual Investor program, or QDII2, is part of measures jointly proposed by the municipal government, the central bank and government regulators that would promote capital account yuan convertibility and international use of the yuan.

Writing by John Ruwitch; Editing by Paul Tait

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