IMF chief says better policy communication vital for China's economic transition

WASHINGTON - IMF's chief Christine Lagarde said Friday that China needs better policy communication with financial markets during its economic transition, hailing China's recent clarifications about exchange rate policy as a good example.

"We clearly understand the multiple layers of transitions through which the Chinese economy is going," Lagarde told a press conference after she was elected to serve a second five-year term as the leader of the 188-member bloc.

"What's critical is, number one, a good and solid communication. This is something that I have said before and I think this is being heard," Lagarde said.

Lagarde praised recent clarifications about Chinese exchange rate policy by Zhou Xiaochuan, governor of the People's Bank of China (PBOC), China's central bank, as "a good example of how communication can actually clear the uncertainties and trepidations."

In a recent interview with Chinese magazine Caixin, Zhou said there is no basis for the continued depreciation of the Chinese currency the yuan and that "China would not let market sentiment be dominated by speculative forces."

Zhou also said China will keep the yuan stable versus a basket of currencies while allowing greater volatility against the US dollar, adding that exchange rate reform would help the market be more flexible in dealing with speculators.

Zhou's comments helped ease the yuan's depreciation pressures, with the currency rising about 0.84 percent against the US dollar this week, capping the biggest weekly gain in almost a year, according to China Foreign Exchange Trade System.

Lagarde said China should continue its economic reforms, and that Chinese leaders "know well about" the structural reforms and restructuring the world's second largest economy needs to succeed.

The IMF chief said she hoped China would move through its economic transition "at the right pace" for the sake of global financial stability.

Lagarde, a former French finance minister, took over as head of the IMF in 2011 following Dominique Strauss-Kahn's resignation amid scandal.