Original title: The RMB exchange rate is conditionally stable and stable.
Economic reporter Yao Jin.
While China's economic operation is generally picking up, the dislocation of the monetary policy cycle between China and the United States is also gradually improving. Since the beginning of the year, China's cross-border capital flow has been stable and orderly, the supply and demand of the foreign exchange market have been basically balanced, the market expectation is generally stable, and the RMB exchange rate has continued the "stable" trend since the second half of 2023. On February 19, 2024, the central parity of the RMB exchange rate against the US dollar was 71032, basically the same as the end of the previous year.
Looking forward to the performance of the RMB exchange rate in 2024, Pan Gongsheng, governor of the People's Bank of China, said at a recent press conference held by the State Council New Office that the short-term influencing factors of the exchange rate are diverse, such as economic growth, monetary policy, financial markets, geopolitics, risk events, etc., and the medium- and long-term trend fundamentally depends on economic fundamentals. In 2024, the RMB exchange rate will continue to remain basically stable at a reasonable and balanced level.
The RMB exchange rate stabilized and rebounded.
According to the data, at the end of 2023, the RMB exchange rate index of the China Foreign Exchange Trade System was reported at 9742, compared with the end of June**07%；Continued in January 2024**15%。
In 2023, interest rates in major developed economies will remain high, and China's economy will rebound, but it will still face problems such as insufficient effective demand and weak expectations. In this context, the RMB exchange rate first rose and then depreciated, and stabilized and rebounded by the end of 2023. Zhu Hexin, deputy governor of the People's Bank of China and director of the State Administration of Foreign Exchange, pointed out in an article that the two-way fluctuation of the RMB exchange rate in 2023 will generally remain basically stable at a reasonable and balanced level, and its performance in the global currency will be stable, playing the role of an automatic stabilizer of macroeconomy and balance of payments.
Looking back on the trend of the RMB exchange rate in 2023, Guan Tao, global chief economist of Bank of China, said that it can be roughly divided into three stages: the first stage is the strong and weak reality in the context of "strong expectations and weak reality", and the second stage is the adjustment in the context of partial realization of expectations; The third stage is the rebound driven by the recovery of the external environment**. From the beginning of November to the end of December 2023, the easing of Fed tightening expectations and the larger-than-expected decline in U.S. inflation led to a rapid decline in the U.S. dollar index and U.S. Treasury yields, and the central parity of the yuan against the U.S. dollar rose to 7Around 10, the spot exchange rate of the renminbi against the US dollar rose to 710 or so.
Regarding the stabilization of the RMB exchange rate at the end of 2023, Wen Bin, chief economist of China Minsheng Bank, believes that since the beginning of November 2023, with the high fall of the US dollar index, the recovery of domestic economic growth, the successive release of "stable expectations" signals from the ** financial work conference and the ** economic work conference, and the improvement of Sino-US relations, the RMB has risen sharply against the US dollar.
It should be noted that the strength of the renminbi against foreign currencies should not only be judged by bilateral exchange rates, but also by multilateral exchange rates in combination with other currencies. In this regard, Guan Tao analyzed that in 2023, the onshore and offshore RMB exchange rates will trade at **2% and 2.%, respectively5%。During the same period, the Emerging Market Currency Index was 38%, the currency of our neighbors, the Japanese yen**73%, KRW**27%, Malaysian Ringgit**39%, which fell more than the yuan.
At the same time, the trend of the RMB exchange rate and the US dollar index have also diverged, and the degree of influence of domestic factors has increased. According to the 2023 Interbank Foreign Exchange Market Operation Report, the correlation between the RMB exchange rate and the US dollar index in 2023 is 399%, a significant decrease of 501 percentage point.
The foundation for exchange rate stability has become more solid.
Looking forward to the trend of the RMB exchange rate in the next stage, the market generally expects that as China's various policy measures continue to play an effective role, the economic operation continues to pick up and improve, RMB assets will continue to be attractive, and the trend of the US dollar index will weaken, and the external pressure will continue to ease, and the foundation for the "stability" of the RMB exchange rate in 2024 will be more solid. "In 2024, the RMB exchange rate will operate at a reasonable equilibrium level, and it may show a small appreciation throughout the year in two-way fluctuations. Wang Jinbin, a researcher at the National Academy of Development and Strategy, said.
Wang Jinbin believes that from a foreign point of view, the spillover impact of monetary policy adjustment in developed economies will be weakened. The Fed is likely to cut interest rates this year, and the dislocation of the monetary policy cycle between China and the United States is expected to improve, promoting the stabilization and convergence of interest rate differentials between China and the United States, which will help make cross-border capital flows more balanced. From a domestic point of view, the policy at the beginning of the year is also conducive to boosting the confidence of domestic and foreign investors. Recently, fiscal, financial, and first-class policies have been frequently issued, and market confidence has been further enhanced. Since September 2023, foreign investors have increased their net holdings of domestic bonds for five consecutive months, accumulating nearly 700 billion yuan. At the same time, the depth and breadth of the foreign exchange market have been continuously enhanced, the degree of cross-border investment and financing facilitation has continued to improve, enterprises have become more risk-neutral, the hedging rate has exceeded 20%, and the resilience of domestic business entities in the face of external shocks and exchange rate fluctuations has also been significantly enhanced.
Regarding the main factors supporting the RMB exchange rate, Pan Gongsheng said that first, China's economy has good and stable fundamentals and maintains a long-term positive overall trend, which is an important foundation for the basic stability of the RMB exchange rate; Second, the dislocation of the China-US monetary policy cycle is expected to be improved, which will promote the convergence of interest rate differentials between China and the United States, and help the RMB exchange rate and cross-border capital flows to be more stable and balanced. Third, RMB assets have good investment and hedging value; Fourth, the micro foundation for exchange rate stability has become more solid.
In 2024, the RMB exchange rate will be basically stable. The trend of the exchange rate fundamentally depends on the economic fundamentals, and the follow-up momentum of China's economy is strong, which is expected to support the future trend of the RMB exchange rate. At the same time, recently, the People's Bank of China announced a 0.05 percentage points, both in timing and magnitude, exceeded market expectations, reflecting the forward-looking monetary policy. Guan Tao believes that in the context of uncertain internal and external environment and unstable factors, the People's Bank of China chose to cut the reserve requirement ratio more than expected at the beginning of the year, which reflects the monetary policy to continue to do a good job in counter-cyclical adjustment, rely on the front, and strengthen the economic recovery in a timely manner, which is conducive to continuous improvement of macroeconomic fundamentals, fundamentally stabilizing the market and confidence, and consolidating the foundation for the stability of the RMB exchange rate.
There are adequate policy tools to address the challenges.
Judging from the past, China has the experience and ability to cope with various difficulties and challenges. Since May 2023, the combination of internal and external factors has increased the pressure on the depreciation of the RMB exchange rate. In this regard, the People's Bank of China and the State Administration of Foreign Exchange have taken continuous measures to decisively open the policy toolbox and actively and steadily respond to the pressure of RMB exchange rate depreciation by strengthening expectation management, lowering the foreign exchange reserve ratio, and raising the macro-prudential adjustment parameters of cross-border financing. Overall, a series of policy measures have stabilized market expectations, the foreign exchange market has been operating in an orderly manner, and the RMB exchange rate has been sharply ** in the past two months.
The 2023 ** Economic Work Conference and ** Financial Work Conference emphasized that it is necessary to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. In this regard, Wen Bin expects that the policy measures to stabilize the exchange rate in 2024 will continue to be effective, and in view of China's abundant exchange rate management tools, it will be enough to ensure the basic stability of the RMB exchange rate at a reasonable and balanced level.
In recent years, in the process of coping with multiple rounds of external shocks, the People's Bank of China and the State Administration of Foreign Exchange have accumulated rich experience and sufficient reserves of policy tools. "The People's Bank of China and the State Administration of Foreign Exchange, as regulators of the foreign exchange market, have the experience, ability and confidence to deal with various shocks and challenges and maintain the stable operation of China's foreign exchange market. Pan Gongsheng said that in the next stage, the People's Bank of China and the State Administration of Foreign Exchange will continue to make decisions in accordance with the highest decision-making and deployment, adhere to the exchange rate is mainly determined by market supply and demand, maintain the flexibility of the RMB exchange rate, and give play to the function of exchange rate adjustment macroeconomy and automatic stabilizer of the balance of payments. At the same time, we should adhere to the bottom-line thinking, enrich the response tools, prevent the risk of exchange rate overshoot, and prevent the formation of unilateral consensus expectations and self-reinforcement.
Zhu Hexin also said that in 2024, the foreign exchange management department will reasonably guide the expectations of the foreign exchange market, prevent the risk of abnormal cross-border capital flows, maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, maintain the basic balance of payments, and resolutely adhere to the bottom line of no systemic financial risks.
*:Economy**.