BEIJING: China’s foreign-exchange (forex) market is more capable of maintaining a steady performance in the second half of the year than in the past as a series of supportive policies are set to help economic recovery regain momentum, experts and officials say.
Forex market stability has come under the spotlight as the People’s Bank of China (PBoC), the country’s central bank, cut benchmark interest rates last week, sparking discussions on whether easing interest rates will widen the US-China interest rate differential and intensify depreciation pressure on the yuan.
Given that economic fundamentals remain the most prominent determinant of exchange rates, experts said the latest rate cuts were more likely to support the yuan than weaken it in the medium term.
Rate cuts, they said, were likely to go in tandem with other policy support in bolstering China’s economic recovery.
Wang Chunying, deputy head and spokeswoman of State Administration of Foreign Exchange, said last Thursday that China’s economy will continuously improve.
This is as coordinated macroeconomic policy support takes effect at an early date, laying a more solid foundation for the country’s forex market to perform steadily.
“Cross-border capital flows are likely to stay stable and orderly,” Wang said, supported by the dollar’s waning strength and the growing resilience of China’s forex market.
“Following a period of short-term fluctuations, the Chinese yuan is poised to rally against at least the weighted average currency basket of China’s trading partners with growing interest from global capital investing in China,” said Robin Xing, chief China economist at Morgan Stanley.
The central parity rate of the onshore yuan against the dollar had weakened by about 4.03% since April to 7.1489 last Thursday.
The CFETS RMB Index, which tracks the yuan exchange rate against a basket of currencies of China’s trade partners, also weakened by 2.15% to 97.65 from April to June 9.
According to Xing, the yuan’s recent depreciation is attributable to the US economy’s better-than-expected performance and China’s slowing economic recovery.
Looking ahead, China’s recovery is likely to regain momentum as policymakers beef up support measures while a steady gain in service consumption drives up employment, Xing said.
In a sign that policymakers are ramping up support for the economy, the PBoC cut interest rates of its medium-term lending facility, a key policy benchmark for one-year loans, by 10 basis points to 2.65% last Thursday, following rate cuts of two other liquidity provision tools last Tuesday.
Experts said the rate cuts, the first ones since August, indicated policymakers’ commitment to helping the economy shake off recent weakness and herald wider policy support.
Potential growth-stabilisation policies in the pipeline could lead to stronger fiscal expansion and higher funding for local governments, according to analysts at investment bank China International Capital Corp Ltd. — China Daily/ANN
