The People’s Bank of China (PBOC) has pledged to step up efforts to stabilize the country’s currency after falling to a 15-year low amid concerns over the strength of the economic recovery in China.
The Central Bank said late Friday, Beijing time, it would “take comprehensive measures and stabilize expectations” on the currency. The PBOC also said in its quarterly monetary policy report that it will “resolutely avoid risks of major volatility”.
The monetary authority also pledged to increase support for the economy more broadly as domestic demand is still “not strong”. The latest confirmation of this assessment came as manufacturing activity contracted again in June and other sectors failed to gain momentum.
The Chinese yuan fell to a seven-month low against the dollar after this news, extending its decline more than 5 percent this quarter.
Regarding the central bank’s comments, Alan Ruskin, chief international strategist at Deutsche Bank AG, said: “The headlines represent progress in terms of the PBOC’s verbal support for the currency and the economy. The market will now expect significant follow-up actions. These can be challenging because stimulating growth “A move to lower interest rates could work against efforts to support the exchange rate,” he said.
Ruskin said that it would be beneficial to provide credit support along with financial actions.