(Yicai Global) Dec. 18 -- The reaching of a phase one trade agreement between China and the US will help diminish uncertainties over monetary policy and loosen constraints on the exchange rate giving the central bank more room to maneuver, said a former official at the People's Bank of China.

The deal announced on Dec. 13 will help to stabilize market expectations and boost global market confidence, Sheng Songcheng, the former head of financial surveys and statistics at the PBOC, told Yicai Global recently.

"The phase one trade agreement will benefit the opening up of the country's financial markets, will attract foreign investment into China and will assist Chinese firms in going global, thus making the two-way flow of capital smoother," Sheng said, adding that it will also ease downward pressure on the world economy.

After almost 18 months of trade conflict and many months of difficult talks, China and the US reached an initial agreement that eliminates the chance of further hikes in import tariffs. Under the phase one deal, Beijing agreed to boost China's purchases of US farm and energy products, while Washington will cut import duties on Chinese products.

Constraints on the yuan's exchange rate have been reduced as a consequence of this deal, Sheng said. The exchange rate's elasticity is expected to improve as the Chinese currency's fundamentals are stable. The transparency of operations in the foreign exchange markets and the pricing mechanism for the central parity rate will also be further enhanced, he added.

The deal will also decrease inflationary pressures, he said. China's consumer price index has been on the rise since last year, spurred by skyrocketing pork prices. The index rose 4.5 percent last month from a year earlier. The price of pork remains high although it has dropped from a recent peak.

China's economy has bottomed out, Sheng said, adding that some positive indications have appeared due to the implementation of various policies. Future work should focus on continuing reforms, promoting market opening-up and expediting the country's economic transformation, Sheng said.