On September 18th, the Federal Reserve announced a rate cut of 50 basis points, marking the first interest rate reduction since the Fed initiated rate hikes in March 2022, as a response to changes in U.S. inflation and employment conditions.
"The People's Bank of China has a clear and transparent stance on exchange rate policy," said the central bank governor Pan Gongsheng at a press conference held by the State Council Information Office on September 24th.
The Renminbi exchange rate maintains a basic stability with solid foundations and support.
First, the economic recovery and positive momentum will further consolidate and strengthen; second, the balance of international payments will continue to remain basically stable; third, the construction of the foreign exchange market has made significant progress.
A person close to the central bank told First Financial that as market expectations for the Fed's rate cut have heated up and been implemented, the U.S. dollar index has continued to fall since August, dropping by 3%, alleviating the depreciation pressure on non-U.S. currencies, and the situation of Renminbi exchange rate depreciation pressure has also been reversed.
The aforementioned person stated that the Renminbi exchange rate has a solid foundation to maintain basic stability.
Macroeconomically, the exchange rate is fundamentally determined by the economic fundamentals.
The central bank's policy package, which is precise and effective in supporting the real economy, will further consolidate and strengthen the positive momentum of China's economic recovery.
Microeconomically, the supply and demand in the foreign exchange market have become more balanced recently.
Data on foreign exchange receipts and payments released by the foreign exchange bureau show that cross-border receipts and payments by enterprises and individuals, and other non-bank sectors, have shifted from a deficit in the early period to a surplus of $15.3 billion in August.
At the same time, in recent years, the resilience of China's foreign exchange market has been continuously strengthened, with a significant increase in the hedging rate of enterprises and the proportion of Renminbi cross-border settlements.
Market participants are more rational in the face of exchange rate changes, which helps to reduce the possibility of significant exchange rate fluctuations.
The person emphasized that market participants must adhere to a risk-neutral approach.
Exchange rates are formed by market transactions, and there are still many external uncertainties.
Under the premise that the Renminbi exchange rate generally maintains basic stability, no one can make an accurate judgment on the short-term trend of the exchange rate, which may appreciate or depreciate, and two-way fluctuations are the norm.
Financial institutions, enterprises, and even individual residents must establish a risk-neutral concept and not gamble on the direction of the exchange rate.
From past experience, the practice of betting on one-sided appreciation or depreciation of the exchange rate often brings unnecessary losses.
The aforementioned person stated that the central bank will continue to maintain the Renminbi exchange rate at a basically stable level of reasonable equilibrium.
The central bank has repeatedly emphasized the importance of adhering to the market's decisive role in exchange rate formation and maintaining exchange rate flexibility.
This is not only conducive to the exchange rate playing a role in regulating the macroeconomy and serving as an automatic stabilizer for international payments, but also helps to enhance the autonomy of monetary policy.
At the same time, the central bank's attitude towards preventing the risk of exchange rate over-adjustment is also very clear.
In the process of dealing with various exchange rate fluctuations, the central bank has accumulated a wealth of experience and formed a rich toolbox, capable of preventing the formation of unilateral consistent expectations and self-realization, and capable of dealing with any exchange rate fluctuations.
