China's central bank says market to play decisive role in yuan exchange rate

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NUSA DUA, Indonesia (Reuters) - China’s central bank governor Yi Gang said the government would continue to let the market play a decisive role in establishing its currency exchange rate, refraining from using it as a weapon, amid an escalating trade war with the United States.

“We will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions,” Yi said in an International Monetary and Financial Committee (IMFC) statement posted on Saturday during the IMF and World Bank annual meetings in Indonesia’s resort island of Bali.

Yi said the government would keep the exchange rate “broadly stable”, and China’s monetary policy would remain neutral with more focus on guiding expectations.

U.S. Treasury Secretary Steven Mnuchin said Chinese officials had told him that further yuan depreciation was not in China’s interest.

Mnuchin has reiterated his concerns that a major drop in the yuan’s value this year against the dollar could be part of an effort to gain a trade advantage for Chinese exports or to offset the impact of U.S. tariffs.

In a separate interview with domestic media published on Saturday, Yi said the central bank did not follow a rate hike by the Fed in September with one of its, as he felt China’s market-based rate levels were appropriate and the yuan remained steady judging by its performance.

He said decision to stay put was not an easy one, but the benefits of a non-move still trumped the potential setbacks.

“We still insist on prioritizing domestic economic conditions when it comes to deciding on monetary policies,” he was quoted as saying by Chinese financial magazine Caixin.

Reporting by Yawen Chen; Editing by Clarence Fernandez & Shri Navaratnam