PBoC pledges to maintain ‘prudent’ monetary policy

Beijing, January 8

China’s central bank pledged to carry out ‘prudent’ monetary policy today as the country’s fumbling attempts to control its currency and stock market rattled investors worldwide.

Policymakers adjusted the currency to a near five-year low earlier in the week.

The move may have exacerbated volatility in the country’s stock markets, which dropped precipitously over concern Beijing would loosen restrictions on the sale of company’s equities by major shareholders.

A circuit breaker intended to control stock market volatility added to the chaos, causing regulators to cancel the mechanism after it halted trading twice last week.

“The international and domestic financial situation remains complicated and severe,” the People’s Bank of China (PBoC) said.

PBoC will carry out ‘prudent monetary policy’ and work to ensure ‘reasonably abundant liquidity’ in banking system this year it said.

The statement came amid worries over slowing growth in the world’s second-largest economy and biggest trader in goods, which have roiled investors worldwide, and with pressure on its currency from capital outflows.

On Thursday, authorities lowered the yuan’s central rate against the US dollar by 0.51 per cent to 6.5646, the lowest since March 2011.

It was the biggest drop since August when Beijing guided the unit down by nearly five per cent in a week in a surprise devaluation.

China limits the yuan to rising or falling two per cent on either side of the reference rate, set by the PBoC.

Authorities set the central rate for the yuan currency marginally higher against the greenback today, ending eight days of falls.

A lower currency should make Chinese exports cheaper on world markets — a challenge for overseas competitors — but at the cost of its imports becoming more expensive in yuan terms.