PBoC governor reiterates pledge to maintain yuan's value stable

The head of China's central bank reiterated a pledge to keep the value of the value of the yuan stable, while stressing the need for tighter monetary policy to prod firms into reducing excess capacity and leverage.

Speaking at the National People's Congress on Friday, People's Bank of China governor Zhou Xiaochuan explained that the recent selling of foreign exchange reserves by the central bank was part of a desirable shift in foreign asset holdings to the private sector.

The most recent Chinese trade foreign reserve data, released earlier in the week, had stoked speculation in some corners that Asia's largest economy might be pondering a devaluation.

Over roughly the past year the yuan had fallen 6% on a trade-weighted basis.

"Yet this move is still small given the pressure the currency has been under," said Julian Evans-Pritchard and Mark Williams at Capital Economics.

Zhou also defended the PBoC's ability to support the country's currency even in the face of sustained market pressures.

"It is the central bank governor’s job to project confidence in the sustainability of policy. But the arguments he used were coherent and, to our mind, make good sense."