Beijing - China's central bank has stopped "regularly" intervening in the foreign exchange market but could still conduct "effective management" of the yuan in cases of extreme volatility, its vice governor said, as policymakers tried to stem selling this week.
The People's Bank of China stunned global markets on Tuesday by suddenly allowing the currency to fall by nearly 2% after a run of poor economic data. It fell again on Wednesday, sparking market fears that Beijing was intent on a much deeper devaluation which could destabilise the global economy.
PBOC Governor Yi Gang, who also runs the State Administration of Foreign Exchange, was asked at a news conference on Thursday if the central bank had intervened behind closed doors to halt the currency's slide on Wednesday.
"The central bank has already withdrawn from regular intervention," Yi said.
But he added that the PBOC will implement "effective management" of the exchange rate in case of external shocks or extreme currency volatility.
However, the PBOC now appears to be moving to stem the slide and calm jittery markets.
Trading sources said that major state banks had been buying up yuan and selling off dollars to prop up the currency, causing the exchange rate to recover sharply in the last few minutes of trade on Wednesday.
PBOC Assistant Governor Zhang Xiaohui said at the same news conference that the recent decline of the yuan had released "accumulated" depreciation pressure of around 3%, adding that loosening monetary policy has added to downward pressure on the exchange rate.
Zhang said the yuan could return to appreciation in the future.
No sharp Yuan falls
The officials' comments came after the central bank distributed an official statement in which it said there is no basis for further depreciation in the yuan given strong economic fundamentals, but that it will increase monitoring of "abnormal" cross-border flows.
The officials said that reports suggesting the government could allow the yuan to fall 10% were "unfounded" and that there was no need to adjust the exchange rate to support exports.
Yi said a more flexible yuan will help make the central bank's monetary policy more independent and effective.
"This helps expand the room for the central bank to make adjustments in interest rates, liquidity and money supply," Yi said.
The central bank has cut rates four times since November and also trimmed bank reserve requirements to support flagging growth in the world's second-largest economy.
The central bank aims to open up its currency market to foreign investors and extend market trading hours to help unify onshore and offshore yuan exchange rates, Yi said.
China will follow its own timetable in making the yuan convertible on the capital account, he said without elaborating.
Reuters reported on Wednesday that the central bank was under pressure from factions within the government to deeply devalue the yuan in order to support struggling exporters.
Chinese steel makers, suffering from endemic overcapacity and weak demand at home, have already leapt to cut prices to boost offshore demand.
Many analysts see the yuan depreciating further this year.