2010.07.0901:19:00UTC+00China To Maintain Loose Monetary Policy

China will continue to maintain a "moderately loose" monetary policy and further improve the yuan exchange rate mechanism, the country's central bank says.

The People's Bank of China said the domestic economy is heading in the right direction, but that it continues to face a difficult task in containing inflation expectations, rebalancing the economy and maintaing growth. "In the second half of the year, in accordance with the State Council's unified plan, we will continue a moderately loose monetary policy," the bank said in a statement.

The central bank also reiterated its stance with regards to exchange rate policy, saying that it would steadily improve the yuan exchange rate mechanism. China's foreign exchange regulator said on Thursday that it will keep the exchange rate of its currency, the yuan, "basically stable" with conditions not right for a large appreciation.

"We will apply dynamic management and adjustments to the floating range of the renminbi's exchange rate, maintaining its basic stability at a reasonable and balanced level, and promote basic balance in international payments," SAFE said in a Q&A statement on its website.

Chinese authorities have prevented the yuan from strengthening against the dollar since July 2008 to help exporters cope with the global financial downturn. The currency appreciated 21% in the three years after after a peg to the dollar was scrapped in July 2005 and replaced by a managed float against a basket of currencies including the euro.

Last month, the government said it would loosen its exchange rate regime, although it ruled out a large one-off revaluation. The yuan has gained around 0.7% against the U.S. dollar since then.

China's trading partners have long criticized that the Chinese government deliberately undervalues its currency in order to boost exports. The U.S. Treasury released its much delayed exchange report to Congress on Thursday, in which it said the yuan is undervalued. It stopped short of labelling China as a currency manipulator, however.

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