Yi Gang's latest article: The flexibility of the RMB exchange rate significantly enhanced, improving the autonomy of interest rate regulation

Yi Gang, governor of the People's Bank of China, recently published an article Independence, Effectiveness, and Economic and Financial Stability of Monetary Policy in Economic Research. The article revealed China's monetary policy regulation, and explained the basic logic and operating mechanism. Yi Gang pointed out that interest rate policy and exchange rate policy must first follow the laws of the market economy, which is the key to economic and financial stability and a curb on systemic financial risks from the macro level. The two types of policies are not parallel. Interest rate is the core and outline of monetary policy, and exchange rate is formed by the market under the influence of interest rate policy. Monetary policy regulation must put domestic goals in the first place, and choose optimal policies such as interest rates to achieve domestic goals, and secondly, create a good environment so that the exchange rate is determined by the market.Yi Gang also said that following the above-mentioned ideas, in the environment of major changes in the interest rates of major developed economies in the world in recent years, China's monetary policy has not simply followed, but insisted on "self-centered", and its autonomy and effectiveness have increased significantly. Complicated factors such as time lag are fully considered in regulation and control. While doing a good job in counter-cyclical regulation, we also pay attention to cross-cycle regulation and cross-regional balance. We are relatively prudent in both tightening and loosening directions, leaving room for monetary policy. In the normal range, the real interest rate roughly matches the potential economic growth rate. In recent years, the flexibility of the RMB exchange rate has been significantly enhanced, which has increased the autonomy of interest rate regulation and promoted macroeconomic stability. The stable economic fundamentals have also supported the stability of the exchange rate. The operation of the foreign exchange market has become more resilient, and a benign interaction between interest rates and exchange rates has formed.