Falls in yuan seen as 'stable' by foreign exchange watchdog

A logo of yuan is seen at a foreign exchange store in Shanghai, China, December 1, 2015.[Photo/Agencies]

Recent fluctuations of the Chinese currency against the basket can be defined as being "in a basically stable range", Wang Chunying, spokeswoman for the administration, said at a news briefing.

Wang's comment appears to indicate that the administration is taking a tolerant attitude, with the yuan being allowed to fluctuate within an acceptable range as currency traders speculate on the level of volatility that would force the authority's intervention. The yuan has weakened by 2.8 percent against the basket, which comprises 13 currencies referenced by the central bank, prompting concerns over whether the drop compromises China's commitment to keep the yuan "stable" against the basket.

In the first quarter, the yuan appreciated against the US dollar but fell against the basket. Its nominal effective exchange rate fell by 2.3 percent against 40 currencies defined by the Bank for International Settlement.

Wang said the yuan is stable compared with other currencies, as some of them have depreciated by more than 10 percent. The People's Bank of China, the central bank, in recent months has moved between depegging the yuan to the dollar and repegging it to the US currency when market confidence in the yuan slumped.

Analysts said this has served the bank's interests by giving it more "wiggle room" on its currency policy.

Tom Orlik, an economist at Bloomberg said: "The worst fears of a cascading capital flight have come to pass. ... There appears to have been a repegging of the yuan against the dollar since mid-January, which reduces the incentive for households to shift funds out of China's currency."