THE government is confident it will maintain a basically stable yuan and keep it at a “reasonable” level, the country’s foreign exchange regulator Pan Gong-sheng said yesterday.

Speaking at a ceremony marking the one-year anniversary of a program that connects Hong Kong and mainland bond markets, Pan said China was confident of keeping the yuan basically stable and at a “reasonable” level.

The comments from Pan, who is also vice governor of the People’s Bank of China, came at a time when the Chinese currency was on a downward spiral.

The onshore yuan slipped past the 6.7 per U.S. dollar mark yesterday for the first time in almost a year, prompting what traders described as efforts by State-owned banks to prop up the currency as anxieties over U.S. trade frictions deepened.

The yuan fell to 6.7204 per U.S. dollar, its weakest since Aug. 7, 2017 and the first time it dropped below 6.7 since Aug. 9, 2017, before recovering to 6.6997 per U.S. dollar. The currency has lost more than 4 percent of its value against the U.S. dollar since mid-June.

Recent fluctuations in China’s foreign exchange market were largely due to a stronger U.S. dollar and external uncertainties, Yi Gang, governor of the People’s Bank of China, said yesterday.

The central bank has closely watched recent fluctuations, Yi said, adding that China’s economic fundamentals were sound and financial risks were largely under control.

“International payments were stable and cross-border capital flows were roughly balanced,” Yi said in a statement published on the central bank’s website.

Yi said China must maintain its managed floating exchange rate regime, which is based on supply and demand, and the yuan’s value against a basket of currencies. Experiences had shown it to be effective.

Yi also added that China will continue to implement prudent and neutral monetary policy to keep the yuan basically stable at a reasonable level.

Traders said that major State-owned banks were seen swapping yuan for U.S. dollars in the forwards market and immediately selling some of them into spot market, which helped support the Chinese currency. Traders and economists say major State-owned banks sometimes act on behalf of the central bank in the foreign exchange interbank market.

“It feels like the State-owned banks are stocking up on bullets to prevent the yuan from falling too much,” said one trader at a Chinese bank in Shanghai.

The central bank earlier set the stage for the drop by putting the midpoint at 6.6497 yuan per dollar, its weakest fixing in about 10 months.

(SD-Agencies)