Experts such as Zhang Jun, Sheng Songcheng, and Li Xunlei interpret the next macroeconomic policy, and the RMB exchange rate is expected to stabilize the US dollar | Market | Li Xunlei
The recent fluctuation of the exchange rate between the Chinese yuan and the US dollar has attracted attention from various sectors in the market. At the 2023 Shanghai Finance and Economics Macro Forum held by Shanghai University of Finance and Economics on July 4th, several economists responded to the issue of the RMB exchange rate, believing that the market does not need to worry too much and that the fluctuation of the RMB exchange rate will gradually weaken.
Affected by factors such as the spillover effect of the Federal Reserve's interest rate hike expectation, the RMB exchange rate has been under pressure recently. On May 17th, the onshore RMB broke 7 against the US dollar, and on July 3rd, the onshore RMB closed at 7.2466 against the US dollar. Regarding this, Zhang Jun, Dean of Fudan School of Economics, Director of China Economic Research Center, and Professor, stated that the current debt crisis in the United States has not occurred, and the interest rate hike cycle is expected to enter its end. The expectation of RMB exchange rate fluctuations will gradually weaken.
Li Xunlei, Chief Economist of Zhongtai Securities, also believes that the market does not need to overly worry about the fluctuation of the RMB exchange rate. "From a 30 year perspective, the overall appreciation of the renminbi against the US dollar indicates the competitiveness of the Chinese economy. If compared to the BRICS countries, their currencies have depreciated by more than 90% against the US dollar in the past 30 years, it can be said that China is one of the few emerging economies that has maintained appreciation against the US dollar, so there is no reason to be pessimistic. At the same time, Li Xunlei pointed out that a moderate depreciation of the renminbi exchange rate is also conducive to improving export competitiveness.".
To maintain exchange rate stability, the central bank has recently made a public statement. At the recently held second quarter monetary policy meeting of the People's Bank of China in 2023, the central bank mentioned "comprehensively implementing policies, stabilizing expectations, resolutely preventing risks of large fluctuations in exchange rates, and maintaining basic stability of the RMB exchange rate at a reasonable and balanced level.". Subsequently, major domestic banks such as Bank of China lowered their US dollar deposit interest rates to help stabilize the exchange rate.
In recent times, the pressure on the RMB exchange rate has been largely affected by the inverted interest rate spread between China and the United States. Due to the aggressive interest rate hikes adopted by the Federal Reserve in the past round, the current interest rates for medium and short-term bonds between China and the United States have become inverted, and the 10-year interest rate spread between China and the United States is approaching an inverted state, which will affect the international flow of capital and ultimately lead to exchange rate fluctuations.
Several economists attending the forum expressed that considering factors such as the RMB exchange rate, domestic interest rates, and foreign liquidity, the possibility of further significant interest rate cuts by monetary policy is unlikely.
Sheng Songcheng, former director of the Investigation and Statistics Department of the People's Bank of China and professor at China Europe International Business School, believes that currently, China does not have the macro conditions and foundation for sustained interest rate cuts. In the second half of the year, interest rates will generally remain balanced, and there is no room for a significant reduction in policy interest rates. Market interest rates may slightly decrease.
Zhang Jun stated that interest rates are an important factor affecting monetary policy, and the expectation of RMB exchange rate fluctuations is gradually weakening, which will partially relax the constraint conditions for the central bank to strengthen countercyclical regulation. Counter cyclical regulation refers to the use of a series of policy tools and measures to reduce excessive cyclical fluctuations in economic operations and reduce systemic risks. Zhang Jun believes that the recent public re introduction of "countercyclical adjustment" by the central bank is to some extent a response to new macroeconomic issues that have emerged in the past period, and these issues are also related to the previous implementation of cross cyclical adjustment and the long-term impact of structural monetary policy.