PBOC vows more flexible yuan movement and greater market role

SHANGHAI (BLOOMBERG) - China said it will let the market play a bigger role in setting exchange rates and allow more flexible movement of the nation's currency.

The People's Bank of China will maintain stability of the yuan "at a reasonable equilibrium level," it reiterated in its quarterly monetary report released Friday.

China has kept the yuan stable in recent months to spur global usage as it seeks to have it added to the International Monetary Fund's reserve-currency basket at a review in November. A 28 percent slump in the Shanghai Composite Index of shares from a mid-June peak has boosted outflows, as China's foreign- exchange reserves declined for a third month to US$3.65 trillion (S$5.05 trillion) in July, central bank data earlier Friday showed.

The IMF said this week the yuan trails its global counterparts in major benchmarks and that "significant work" in analyzing data is needed before deciding whether to add the currency to its Special Drawing Rights basket. Its staff members on Tuesday proposed delaying any expansion of the basket by nine months, until September 2016, in the event that a decision is made in China's favour.

The central bank will also ensure appropriate liquidity supply with multiple policy tools, according to Friday's statement. It will continue to improve the Shanghai interbank offered rate and loan prime rate as part of efforts to create a market-based interest rate system.