A stable foreign exchange market in focus


A cashier counts US dollar bills at a bank in Hai’an, Jiangsu Province. [XU JINBAI/FOR CHINA DAILY]

Action will be swift to deal with any major impact of the expected Fed cut

China is closely monitoring any monetary policy adjustment in the United States and will make countercyclical adjustments to keep the currency market stable if necessary, officials and experts said on Friday.

“This round of policy adjustments by the US Federal Reserve will not change China’s generally balanced international payments or the overall stability of the Chinese yuan,” said Wang Chunying, spokesperson for the State Administration of the United States of America. foreign exchange, the country’s foreign exchange regulator.

Still, SAFE will monitor the pace of the Fed’s interest rate hike and the fallout, while “paying close attention” to inflationary pressure in the United States, which may continue in a context of tight production and demand is picking up, she told a press conference on Friday.

In response, the administration will continue reforming and opening up the foreign exchange market to maintain the flexibility of the yuan, and make countercyclical adjustments in due course, Wang said.

Experts said Wang’s remarks coincide with the perceived risk in financial markets that foreign central banks may reduce stimuli at a rapid pace, which could create pressure in the form of capital flowing out of China and a weakening of the yuan.

“Global inflationary pressure and energy shortages have shaken the basis for accommodative monetary conditions and prompted foreign central banks to step up their rate of reduction,” said Wang Youxin, senior researcher at the Bank of China.

Despite the potential pressure from the yuan to depreciate, the SAFE spokeswoman’s remarks show that Chinese regulators will remain committed to reforms aimed at allowing the foreign exchange market to decide on cross exchange rates and refrain from intervening in the market, said Wang Youxin.

At the same time, regulators will remain vigilant against any risk of sudden or rapid currency depreciation and capital outflows, and will be prepared to respond with countercyclical policy tools, such as the countercyclical adjustment factor on the yuan and the reserve requirement ratio on forward currency swaps, he said.

“I don’t think cross-border capital flows will get so much worse this year and trigger such measures,” he said. “Even if the Fed begins to cut spending this year and raise interest rates next year, the impacts on the yuan will be much smaller than those seen after the cut cycle began in 2014.”

China’s economy continues to fare better than many other economies, the country’s prudent monetary policy has avoided major asset bubbles vulnerable to tightening global liquidity conditions, and yuan-denominated assets have become more attractive to global investors. , did he declare.

In the Chinese bond market, valued at 128.1 trillion yuan ($ 20.1 trillion), up to 3.1% of the value was held by foreign investors at the end of September, up 0.2 percentage point from report at the end of last year, according to official data. show.

According to the SAFE spokeswoman, improving China’s external debt structure, greater yuan flexibility and the Fed’s continued communication with the market about its reduction plan will also help contain the fallout from the Fed’s cut on the Chinese foreign exchange market.

She said the country’s forex market has performed consistently this year. Chinese lenders sold about $ 1.68 trillion in foreign exchange and bought about $ 1.86 trillion in the first three quarters of the year, resulting in net purchases of $ 180 billion.

The central parity of the onshore yuan against the US dollar stood at 6.4032 on Friday, up from 6.4854 at the end of last month.

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