"It is necessary to keep the renminbi exchange rate under a managed float," said Dai Genyou, director of the Monetary Policy Department of the People's Bank of China, China's central bank.

The market mechanism in China is not yet sound enough to shoulder a liberalized exchange scheme, said Dai at a seminar in Beijing.

Any haste on the issue could cause sharp fluctuations in the currency and affect the steady economic growth in the long term, he said.

The yuan currency has been rigidly controlled by the government since the Asian financial crisis of 1997, kept in a tight floating range of around 8.277 to 8.28 to the US dollar.

Dai said making the yuan fully convertible will also take time. Presently, the yuan is only convertible under the current account.

Authorities have not given a timetable as to when the yuan would become convertible under capital accounts.

Dai said keeping the yuan unconvertible has cushioned the impact of the Asian crisis on China.

But he admitted that adjustment should be made in foreign exchange regulations and monetary policy as the opening-up of China accelerates.

At the end of last year, China's foreign exchange reserves stood at US$165.5 billion.

Central Bank Governor Dai Xianglong said last month the massive foreign exchange reserves would keep the yuan stable this year.

The bank will continue to put maintaining stability of renminbi as the priority in its monetary policy for the next five years, Dai Genyou said.

The monetary policy also will depend upon robust economic growth and stable price levels.

Dai said the bank would readjust its lending policy and grant more support to small and medium-sized enterprises while increasing loans for housing, export credit and infrastructure construction.

On the other hand, it would also prevent an overheating economy and always maintain a stable yuan.

Dai said the growth of the consumer price index should be kept below 3 per cent.

(China Daily 02/19/2001)