Adequate policy tools will maintain basic stability of the RMB exchange rate
2024-11-18
Recently, the Chinese yuan exchange rate has been under pressure and experiencing a correction. As expectations of the Federal Reserve's interest rate cuts weaken, non US dollar currencies, including the renminbi, may continue to face external pressure. Regarding this, foreign exchange market experts have stated that in recent years, foreign exchange management departments have steadily responded to multiple rounds of external shocks, continuously accumulated experience in this process, improved market regulation measures and methods, and have the ability to prevent the RMB exchange rate from overshoot. As a series of incremental policies gradually begin to take effect, the economy is showing a trend of recovery and improvement, which also helps to support the stable operation of the RMB exchange rate. On November 15th, the onshore Chinese yuan closed at 7.2310 yuan against the US dollar at 4:30 pm, an increase of 99 basis points from the previous closing price. The closing price of offshore RMB against the US dollar was 7.2361 yuan, up 162 basis points from the previous closing price, ending the depreciation trend for five consecutive trading days. Looking at it over time, in the first half of November, the overall pressure on the RMB against the US dollar weakened. Among them, on November 6th, there was a significant adjustment in the exchange rate of RMB against the US dollar, with the offshore RMB exchange rate falling by more than 1000 basis points and falling below 7.20 yuan. During the same period, the US dollar index significantly strengthened in the international foreign exchange market. According to Wind data, on November 14th, the US dollar index rose above 107 points for the first time since November 2, 2023. With the market's expectation of a Fed interest rate cut cooling down, the US dollar index has rebounded significantly since October this year, and has recently hit new highs, causing significant impact on non US dollar currencies. Market participants believe that if the US dollar index and US bond yields continue to rise, non US dollar currencies, including the Chinese yuan, may continue to face external pressure in the near future. The People's Bank of China recently announced that it will tender and issue the 10th and 11th issues of central bank notes for 2024 through the Hong Kong Monetary Authority's Central Depository and Clearing System (CMU) bond bidding platform on November 20, with maturities of 3 months (91 days) and 1 year, totaling 45 billion yuan. Experts say that the People's Bank of China regulates the RMB liquidity in the offshore market by issuing offshore RMB central bank bills, which helps stabilize market expectations and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. In addition to offshore RMB central bank bills, the reserve tools in the current foreign exchange policy toolbox are still sufficient. For example, foreign exchange risk reserves, foreign exchange deposit reserves, and macro prudential adjustment parameters for cross-border financing can all play a role when necessary. The "2024 Third Quarter Report on the Implementation of China's Monetary Policy" proposes to monitor and analyze cross-border capital flows, adhere to bottom line thinking, implement comprehensive policies, strengthen expectation guidance, prevent the formation of unilateral consistent expectations and self realization, resolutely prevent exchange rate overshoot risks, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. The recovery and improvement of economic fundamentals will provide greater support for maintaining the basic stability of the RMB exchange rate. On November 15th, the National Bureau of Statistics released the main economic operation data for October. A series of stock policies and incremental policies have been synergistically implemented and have shown sustained effectiveness. Major economic indicators such as consumption, service industry, and imports and exports have significantly rebounded, employment and prices have remained generally stable, and social expectations have continued to improve. The operation of the national economy has made steady progress and increased steadily, "said Fu Linghui, spokesperson for the National Bureau of Statistics and head of the Comprehensive Statistics Department of the National Economy. The Chief Economist of CITIC Securities clearly stated that external disturbances may be the biggest risk factor facing the RMB exchange rate in the coming period. If domestic demand related policies continue to maintain their intensity, they may be able to hedge the impact of external risks on the RMB exchange rate to a certain extent. With the implementation of a package of incremental policies such as fiscal and monetary policies, the domestic economy has further consolidated its upward trend, and in recent years, the resilience of China's foreign exchange market has significantly increased. It is expected that the RMB exchange rate will remain basically stable at a reasonable equilibrium level Wen Bin, Chief Economist of Minsheng Bank, stated. In recent years, the resilience of China's foreign exchange market has steadily improved, and the awareness and ability of enterprises to manage exchange rate risks have been continuously enhanced. The State Administration of Foreign Exchange continues to guide enterprises to establish a neutral concept of exchange rate risk and promote banks to strengthen foreign exchange services for enterprises, especially small and medium-sized enterprises. Through various efforts, the level of enterprise exchange rate risk management has gradually improved in recent years Li Hongyan, Deputy Director of the State Administration of Foreign Exchange, recently stated that in the first three quarters of this year, the scale of foreign exchange risk managed by enterprises using foreign exchange derivatives exceeded 1.1 trillion US dollars, and more than 32000 merchants applied for exchange rate hedging for the first time, all of which are at historically high levels. On November 13th, Yongli Corporation responded to investors' questions on the Shenzhen Stock Exchange's interactive platform, stating that the depreciation of the RMB exchange rate helps to increase the company's foreign exchange earnings and has a certain positive impact on its export business. However, the exchange rate is affected by multiple factors such as external environment, economic situation, and exchange rate market, and has a high degree of uncertainty. The company will track foreign exchange fluctuations in real time in its daily operations and form a relatively complete risk control mechanism. Shanghai Electric Power Co., Ltd. also stated on the investor Q&A platform that the current appreciation of the US dollar has a positive impact on the company's foreign exchange gains and losses. The company will arrange the term structure of foreign currency deposits and loans according to the trend of the exchange rate market, and appropriately carry out foreign exchange derivative transactions to lock in costs, avoid and prevent exchange rate or interest rate risks. In addition, several companies have recently announced the launch of foreign exchange derivatives trading and foreign exchange hedging business. The announcement released by CNNC Titanium Dioxide on November 16th shows that in order to prevent exchange rate fluctuations and reduce the impact of market fluctuations on the company's operations and profits and losses, the company plans to carry out foreign exchange hedging business with a cumulative amount not exceeding RMB 5 billion and a maximum stock not exceeding RMB 3 billion (or equivalent foreign currency). Li Hongyan stated that the State Administration of Foreign Exchange will continue to strengthen market publicity and training, promote financial institutions to optimize services, cooperate with multiple parties to reduce the cost of foreign exchange hedging, promote the development of the foreign exchange market, construct better foreign exchange financial infrastructure services, and support enterprises to better manage foreign exchange risks. (New Society)
Edit：Yao jue Responsible editor：Xie Tunan
Source：China Securities Journal
Special statement: if the pictures and texts reproduced or quoted on this site infringe your legitimate rights and interests, please contact this site, and this site will correct and delete them in time. For copyright issues and website cooperation, please contact through outlook new era email：lwxsd@liaowanghn.com
Economy
Recommended Reading Change it 
Home
