Market conditions to determine exchange rates: PBOC

Market supply and demand will predominantly determine the movement of RMB exchange rates in the future and free convertibility of RMB under capital accounts can ultimately be realized, said Zhou Xiaochuan, governor of People's Bank of China (PBOC) on Thursday.

Although Zhou did not disclose a defined timetable for the free convertibility of RMB, he revealed that the central bank will be making further adjustments based on market feedback.

With regards to the domestic economic situation, Zhou said that the central bank will be employing more drastic measures to prevent the economy from overheating and to curb the rate of inflation. Control measures adopted by the central bank include changes to interest rate and exchange rate, adjustments in bank reserve ratios, and open market operations.

Zhou also said that the central bank will be adopting new measures to curb excessive liquidity in the market. He felt that the central bank's monetary policies may have an inhibitory effect on the issue.

He added that excess liquidity in the market mainly came from China's rapid economic growth, income growth, the use of foreign exchange reserves, and the increase in foreign investment.