MNI BREIF: PBOC To Keep Yuan Stable - Deputy Gov. Pan

The People Bank of China can keep the yuan stable with sufficient policy tools and expects the U.S dollar to lose momentum in future, said Deputy Governor Pan Gongsheng Thursday during the Lujiazui Forum in Shanghai.

Conditions for a steady yuan remain thanks to economic fundamentals based on China’s upward trend and an possible U.S. recession, which will be supportive. USD will weaken as Federal Reserve’s interest-rate cycle ends, he said. “We have experience in dealing with external shocks, and macro-prudential policy tools are sufficient… we have the confidence, conditions and ability to maintain the stable operation of the foreign exchange market,” Pan noted.

He attributed China’s comparatively steady financial cycle to the PBOC’s adherence to prudent monetary policy. China will not impose competitive zero interest rates or quantitative easing policy, he added. Meanwhile, the high real interest rate on yuan-denominated assets attracts international investors and trade partners, he said. China's real interest rate is about 1.7%, measured by the two-year CGB yield minus the core consumer price index (CPI), comparable to that on US Treasuries and significantly higher than equivalent products in developed economies such as Germany and Japan.