Conditions exist for yuan's two-way fluctuation: official

Conditions for the two-way fluctuation of the Chinese currency's exchange rate are already in place and there is no need to overreact to the yuan's depreciation since mid February, an official said on Thursday.

"It is a normal phenomena for a currency's exchange rate to either rise or fall and we should pay more attention to the medium and long-term trend of the yuan," said Guan Tao, head of the balance of payment department under the State Administration of Foreign Exchange.

His comment followed a sharp depreciation of the yuan this year, especially since the middle of February.

Compared with the first trading day of 2014, the yuan's central parity rate against the U.S. dollar has retreated by 599 basic points to 6.1589 as of Thursday, contrasting with an appreciation of more than 3 percent last year.

Guan attributed the reversed trend to a slowing Chinese economy, flagging trade growth in the first quarter, as well as the U.S. Federal Reserve's accelerated tapering of it quantitative easing.

China's economic growth slowed to a six-quarter low of 7.4 percent in the first quarter of this year, down from an annual figure of 7.7 percent last year.

The two-way fluctuation of overseas capital flow and the yuan's exchange rate will become a new norm with lingering uncertainties both at home and abroad, Guan predicted.

"The yuan's exchange rate is approaching a reasonable level around the equilibrium," the official said, citing the ratio of current account balance to a country's gross domestic output, an internationally recognized measure of balance of payment.

Since 2010, the ratio for China has dropped to a proper range of less than 4 percent. Last year, the ratio stood at 2 percent, signaling the country's rational level of balance of payment and a sound footing for yuan's exchange rate.