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China verbally reinforces the Yuan while trade and growth fear Spike

Two senior Chinese central bank officials vowed to keep the yuan stable on Tuesday, fueling speculation that lawmakers are willing to take tougher measures to stop the currency falling.

Using a standard language to describe the currency's stance The governor of the People's Bank of China, Yi Gang, said China would "keep the yuan exchange rate basically stable at a reasonable and balanced level." That and comments by another central bank official on Tuesday are the first clear statement on the currency of the authorities since the yuan began to weaken in mid-June.

"Recently the forex market has shown some volatility and we" Pay close attention to that, "Yi said in a statement posted on the central bank's website, which was an answer to the questions of the China Securities The fluctuation is due "mainly to factors such as a stronger dollar and external uncertainties, and there has been a pro-cyclical behavior," he said.

June Slump

The yuan is the currency with the worst performance in Asia in the past three weeks, losing 3.7 percent against the dollar as the domestic economy slows and the nation approaches a trade war with the US A failure to contain the fall will fuel speculation that officials are effectively depreciating the currency to defend against the effects of commercial rates.The yuan erased the losses to advance in the terrestrial and foreign markets after the coment Yi Aryans.

"The PBOC is sending a warning and verbal intervention that the yuan's recent fall was too fast," said Zhou Hao, an economist at Commerzbank AG in Singapore. "In the short term, the yuan could strengthen as traders profit from the recent decline, but if the market ignores the PBOC and continues to push the weaker yuan fast, the central bank can make a strong intervention to send a signal stronger ".

While there were no hard actions on the market, there were some signs of [19659009] slight, suspected intervention on Tuesday morning. Some large Chinese banks sold the dollar after the yuan fell further than 6.7 per dollar, a move that strengthened the currency above that level, according to four traders who asked not to be named.

Read about why analysts and traders expected China to defend the yuan at 6.7 per dollar.

"Market sentiment is very one-sided, all coverage and trading flows point to a further weakening of the yuan," said Ryan Lam, head of research. in Shanghai Commercial Bank Ltd. "The yuan is going through a very bad cycle now."

Fundamentals of Sound

China's economic fundamentals are sound and financial risks are controllable, said Yi, adding that the nation must continue with its foreign policy. -change policy "management of a floating currency exchange rate mechanism, which is based on market supply and demand and in reference to the basket of currencies". The central bank will maintain a prudent and neutral policy stance, he said.

What our economists say.

"It is not clear whether the PBOC is now drawing a line in the sand at 6.7, or simply signaling a willingness to do more to lean on the weakness of the currency," wrote Tom Orlik and Chen Fielding at Bloomberg Economics. "What seems clear is that" managed "is going back to the" managed float "of the yuan.

Legislators are confident that the yuan will remain basically stable, said the deputy governor of the yuan. PBOC Pan Gongsheng at a conference in Hong Kong, Kong on Tuesday The balance of payments of the nation is generally balanced, and has many foreign reserves, rich experience and many policy tools, he added.

The yuan ashore rose 0.24. percent to 6.6500 per dollar at 4:52 p.m. in Shanghai on Tuesday, after recording its worst monthly decline since June 1994. The currency traded abroad was 0.39 percent stronger The Bloomberg replica of the CFETS index RMB, which traces the yuan against 24 pairs, fell for the tenth day in a row, to 95.1.

"The central bank is ready to use stronger measures to change the market trend, such as further depreciation" The yuan will push the me panicked while stock sentiment has already been poor, "said Tommy Xie, economist at Oversea-Chinese Banking Corp Ltd." The additional weakness will be limited as the market is concerned about the possible intervention of the PBOC. " 19659002] – With the help of Xiaoqing Pi, Yinan Zhao, Tian Chen, Miao Han and Emma Dai

( Add comments from PBo, Yi and Pan, and economists. ) [19659021]

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