Market forces will play a bigger role in setting the value of the renminbi, which has yet to reach equilibrium, according to the head of China's central bank. This suggests that policymakers still think there is room for the renminbi to rise despite a surprisingly large Chinese trade deficit in February, says an article in the Wall Street Journal. Excerpts:

According to the Governor of People's Bank of China Zhou Xiaochuan, the closer the renminbi moves to an equilibrium level at which supply and demand for a currency match, the bigger the role the market plays.

At that point, the central bank could reduce intervention "in an orderly manner".

Since June 2010, when it allowed the renminbi to float somewhat, the PBOC has intervened to guide the currency higher. But the future direction of the renminbi has become increasingly murky as China's trade surplus has eroded in recent months. Bank analysts have argued that China's currency is likely to increase in value this year, though at a slower pace than in 2011.

The central bank has advocated revaluation of the currency as a way to help China remake its economy so it relies less on exports and investment in capital-intensive industries and more on domestic demand. Zhou didn't give any indication how rapidly the currency is likely to appreciate this year, but the recent trade figures suggest the pace of appreciation is likely to decline from last year.