BEIJING (Reuters) - China’s central bank does not have a “bottom line” for either the yuan exchange rate against the dollar or foreign exchange reserves, a senior official told Reuters in an interview.
A fall in reserves below $3 trillion earlier this year raised questions in markets over the central bank’s pain threshold for bolstering the yuan. But, Zhou Xuedong, director of the business management department in the People’s Bank of China, denied this was a concern.
“As far as I know, China has never set a bottom line for the yuan exchange rate or the size of foreign reserves. The markets will guess about which level the yuan will reach, which then creates expectations,” Zhou told Reuters in an interview conducted on Friday.
“In fact, we aren’t concerned about the foreign reserves or the yuan reaching any specific level.”
Financial markets are closely watching to see if China will allow the yuan to weaken below the 7-to-the dollar level as expected U.S. interest rate hikes buoy the dollar. State banks stepped in aggressively to defend that level in December.
Zhou said reserves had been sold during the past two years to prevent the yuan overshooting on the downside. But he said that while guiding market expectations was important there was no intent to set the direction for the yuan.
“We do not deliberately pursue the appreciation or depreciation of the yuan, because that is not sustainable,” he said.
China’s foreign exchange reserves unexpectedly rose for the first time in eight months in February, rebounding above $3 trillion as a regulatory crackdown and a steadying yuan helped staunch capital outflows.
The yuan fell 6.5 percent against the dollar last year, but has risen about 0.5 percent this year.
Zhou added that China’s closer scrutiny of outbound investment is necessary to prevent fraudulent deals, but no new limits have been implemented on capital outflows.
“It is necessary to strengthen reviews of the authenticity and compliance of investment and trade,” said Zhou. “Some preferential policies supporting outbound investment may be cancelled...but in fact, the basic policy framework has not changed.”
Reporting by Qizi Sun; Writing by Elias Glenn; Editing by Simon Cameron-Moore