Recently, Pan Gongsheng, deputy governor of the people's Bank of China and director of the State Administration of Foreign Exchange, said on the current operation of China's financial and foreign exchange market that it is fully based, confident, and capable of maintaining the stable operation of China's foreign exchange market. We will maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
On May 20, Wang Youxin, a researcher at the Institute of International Finance of the Bank of China, told reporters that the timing of the speech can be said to be meaningful: on the one hand, with the rapid release of the mood of depreciation in the early stage of the exchange rate, This statement not only conforms to the needs of the change of market sentiment and the adjustment of balance of payments, but also gives more flexibility to the real economy. On the other hand, the speech at this time released a stability signal and regulatory intention, indicating that the central bank has the confidence and ability to maintain the stable operation of China's foreign exchange market.
The report on the implementation of China's Monetary Policy for the first quarter of 2019 recently released by the Central Bank shows that since 2019, the RMB exchange rate has been based on market supply and demand, with reference to changes in the exchange rate of a basket of currencies. It has maintained basic stability at a reasonable equilibrium level.
In the first quarter, the national economy started smoothly, positive factors gradually increased, boosting market confidence, the RMB exchange rate against the dollar and against a basket of currencies have appreciated. At the end of March, the CFETS RMB exchange rate index was at 95.04, up 1.89% from the end of last year, while the RMB exchange rate index with reference to the SDR basket was at 95.23, up 2.24% from the end of the year. According to the calculations of the Bank for International Settlements, the nominal effective exchange rate of the RMB appreciated by 2.26% and the real effective exchange rate by 2.79% in the first quarter. At the end of March, the reference rate for the renminbi against the dollar was 6.7335 yuan, up 1.93 per cent from the end of last year. In the first quarter, the RMB exchange rate against the US dollar exchange rate annualized volatility of 3.69%, the exchange rate continued to maintain flexibility, played the role of macroeconomic and balance of payments "automatic stabilizer."
Pan Gongsheng said: in recent years, we have accumulated rich experience and sufficient policy tools in dealing with fluctuations in the foreign exchange market, and will take the necessary counter-cyclical adjustment measures to strengthen macro-prudential management in the light of changes in the situation. We will crack down on violations of laws and regulations in the foreign exchange market and maintain a sound order in the foreign exchange market.
On 20 May, Wang Qing, chief macro analyst at Dongfang Jincheng, said in an interview with reporters that in terms of the choice of policy tools, measures such as counter-cyclical factors, offshore central bank voting, and cross-border capital flow management, Both of them can regulate the pro-cyclical behavior of onshore and offshore foreign exchange markets. These policy tools or policy combinations can be used depending on the volatility of the RMB exchange rate. Judging from past experience, the ability of the central bank to regulate and control the foreign exchange market has been verified many times.
As for the next step in the trend of the RMB exchange rate, Wang Qing said that since the beginning of this year, the monthly macroeconomic and financial data have fluctuated greatly, and there is no need for the market to be "at first glance". Looking at the lengthening cycle, the fundamentals of the domestic economy have not been significantly weakened. With the tax reduction and fee reduction and the "wide credit" policy to support the real economy, the resilience of domestic economic growth is prominent, and the fundamentals continue to form an effective support for the RMB exchange rate. In the future, the mood in the foreign exchange market will stabilize, and it is unlikely that the RMB will continue to depreciate sharply, or even "break 7". After a short-term rapid devaluation, the RMB exchange rate is expected to return to the two-way volatility pattern under the background that it is difficult for the US dollar index to continue to rise sharply. On the one hand, it will help to stabilize the expectations of the domestic macro-economy and capital markets, and control the exchange rate factors may pose constraints on the implementation of the "self-oriented" monetary policy by the central bank. at the same time, it will also objectively create a favorable environment for foreign trade and trade cooperation.
Wang Youxin predicted that in view of the current central bank has taken stable and macroprudential measures, so the subsequent exchange rate trend will change the previous unilateral trend, showing a two-way fluctuation trend. On the one hand, the pace of interest rate increases by the Federal Reserve is slowing, and signs of a downward trend in the US economy will gradually "block" the US dollar; on the other hand, the gradual stabilization of the Chinese economy and the stabilization measures of the central bank will "support the bottom" of the renminbi, and the direction of the two is the same. In addition, as the situation of cross-border capital flows improves and the risks of external imports ease, the RMB exchange rate will gradually stabilize and recover. Even if there are abnormal fluctuations in cross-border capital flows in the future, central banks have a wealth of experience and tools to deal with extreme situations. Therefore, we should strengthen our confidence in the long-term and stable growth of China's economy, treat exchange rate fluctuations correctly and rationally, and take reasonable measures to avoid exchange rate risks.