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China central bank to keep yuan stable
Updated: 2005-05-26 21:56

BEIJING - China will keep its currency stable at a "reasonable and well-balanced level" while improving the yuan's exchange rate mechanism, the central bank said in its first quarter report.

The People's Bank of China said it will maintain its prudent monetary policy as it seeks to cool off overheated sectors of the economy, support economic development and head off inflationary pressure and financial risk.

The report, posted on the bank's website, said the bank faced "serious challenges" in the implementation of an effective monetary policy largely due to China's growing trade surplus and foreign exchange reserves during the first quarter.

China enjoyed a 16.6 billion dollar trade surplus during the first quarter of 2005, up from a 8.6 billion dollar trade deficit during the same period last year, the bank said.

China's foreign exchange reserves, the second-largest in the world after Japan's, hit 659.1 billion dollars at the end of March, an increase of 16.5 billion dollars over February, official data shows.

In the coming months, the bank would seek to further streamline its foreign exchange system to facilitate the orderly outflow of funds, the report said.

At the same time it would tighten the management of foreign exchange inflows and settlement

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