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Chinese central bank warns of continuing changes

The People's Bank of China (PBOC), China's central bank, has warned financial markets to expect more volatility in the short term, Bloomberg has reported19 Aug 2015

The yuan is likely to move in both directions as the situation stabilises, PBOC chief executive Ma Jun said, Bloomberg reported.

Last week China lowered its 'central parity' rate - the rate at which the yuan trades against the US dollar - by 1.9%, and announced it will now base the daily rate on market conditions. This caused the currency to immediately fall in value.

From 11 August, the daily central parity quotes on the China Foreign Exchange Trade System before the market opens will be based on three measures: the closing rate of the inter-bank foreign exchange rate market of the previous day; supply and demand in the market; and the price movements of major currencies.

The IMF welcomed the change, saying that it "appears a welcome step" as it will allow market forces to play a greater role in determining the exchange rate.

The changes to the central parity rate will stabilise the yuan in future, and protect from sudden fluctuations, Ma said.

The Chinese government has "no intention or need to participate in a currency war", Ma said, according to the Financial Times.

Ma Jun left Deutsche Bank last year to join the People's PBOC, and said at the time that he expected "very aggressive" economic changes.