China still has sufficient policy space to deal with greater-than-expected challenges and changes, a senior official of the People's Bank of China (PBOC), the country's central bank, said Wednesday.

The central bank will continue to implement a prudent monetary policy in a targeted way and strengthen counter-cyclical adjustments and policy reserves, PBOC official Zou Lan told a press conference.

The central bank will use a combination of policy tools to keep liquidity at a reasonable and sufficient level, and guide financing costs of the real economy downward, Zou said.

He added that efforts will also be directed toward guarding against the risk of exchange rate overshooting and guiding financial institutions to help defuse local government debt risks.

Speaking about the yuan's exchange rate, Zou said though the yuan depreciated against the U.S. dollar following a higher dollar index since mid-July, the Chinese currency has maintained its strength against other non-dollar currencies.

Zou reaffirmed that the central bank will resolutely correct one-sided and pro-cyclical behaviors and deal with actions that disrupt forex market orders.

As China's economic recovery continues apace, there is a solid foundation for the yuan exchange rate to maintain its basic stability at a reasonable and balanced level, the central bank official said.