China will allow the market to set the value of the yuan, according to its central bank, and it will also allow policy to remain flexible so that credit growth will be encouraged.
Reuters reported Monday that the People’s Bank of China said it would also hold back on intervention. In a statement, PBOC Governor Zhou Xiaochuan Zhou said that monetary policy actions would be governed by liquidity conditions, in response to yuan demand, capital flows internationally and the balance of payments.
He was quoted saying, “The closer the yuan is to an equilibrium, the bigger role market forces will play in the yuan exchange rate. We will allow and encourage market forces to play a bigger role, and the central bank’s participation and intervention in the market will decrease in an orderly manner.”
Investors have been expecting a reduction in how much cash must be kept at PBOC by commercial lenders, after required reserve ratios were cut in November and again in February to lower them from their record high in June of 21.5%.