The Chinese yuan skyrocketed in response!, Two departments amplify cross-border recruitment | Exchange rate | Department
Stabilize the exchange rate, let the two departments take action again!
On July 20th, the website of the People's Bank of China announced that in order to further improve the macro prudential management of cross-border financing across all channels, continue to increase the sources of cross-border funds for enterprises and financial institutions, and guide them to optimize their asset liability structure, the People's Bank of China and the State Administration of Foreign Exchange have decided to increase the macro prudential adjustment parameters for cross-border financing for enterprises and financial institutions from 1.25 to 1.5, which will be implemented on July 20th.
After the news of the pictures landed, the Chinese yuan rose in response. On the morning of the 20th, the RMB market exchange rate rebounded significantly. As of 9:47, both offshore and onshore RMB exchange rates against the US dollar have risen by over 400 basis points. Among them, the offshore RMB exchange rate against the US dollar was 7.1854 yuan, up 467 basis points from the previous closing price, and the highest intraday price was 7.1804 yuan; The onshore RMB/USD exchange rate was at 7.1787 yuan, up 410 basis points from the previous closing price, and the highest intraday price was at 7.1620 yuan.
Relax the upper limit of overseas financing quota
Pang Ming, Chief Economist and Director of Research at JLL Greater China, stated that raising the macro prudential adjustment parameters for cross-border financing of enterprises and financial institutions is conducive to further expanding the use of foreign investment and expanding financing channels, facilitating cross-border financing for domestic enterprises and institutions, reducing the difficulty and cost of financing for the real economy, serving the development of the real economy, better coordinating the domestic and international situation, effectively utilizing the two markets and resources, and coordinating the two cycles of domestic and international.
"In the context of China's moderate external debt scale, reasonable structure, and overall controllable risks, this measure helps to maintain a reasonable and orderly two-way balanced flow of cross-border funds, maintain the stability of foreign exchange reserve scale and market expectations, maintain the stable and healthy operation of the foreign exchange market, maintain the basic stability and two-way fluctuations of the RMB exchange rate at a reasonable and balanced level, and promote internal and external balance," said Pang Ming.
For the foreign exchange market, after implementing overseas financing, enterprises are expected to increase the domestic market's foreign exchange supply, thereby improving the supply and demand of the foreign exchange market and to some extent, stabilizing the RMB exchange rate.
From a historical perspective, Wen Bin, Chief Economist of Minsheng Bank, stated that regulatory authorities have lowered the macro prudential adjustment parameters for cross-border financing of financial institutions and enterprises from 1.25 to 1 since December 2020 and January 2021, respectively, when the RMB exchange rate was in the appreciation range. In October 2022, the regulatory authorities switched to raising the macro prudential adjustment parameters for cross-border financing of financial institutions and enterprises from 1 to 1.25, when the RMB exchange rate was in the depreciation range. The current exchange rate of the Chinese yuan against the US dollar is around 7.2, and this adjustment reflects the regulatory authorities' intention to reasonably guide market exchange rate expectations.
"The regulatory 'exchange rate toolbox' is still relatively sufficient, mainly including tools such as foreign exchange deposit reserve ratio, forward foreign exchange risk reserve ratio, cross-border financing leverage ratio, and macro prudential adjustment coefficient for domestic enterprises' overseas loans, which can continue to guide market expectations reasonably and effectively when necessary." Wen Bin said.
The RMB exchange rate is expected to gradually stabilize
The RMB exchange rate has fluctuated recently. Regarding this, Liu Guoqiang, Vice President of the People's Bank of China, recently stated that the trend of the RMB exchange rate depends on economic fundamentals in the long run and is unpredictable in the short term. Overall, in the long and short term, China is a large open economy, and the exchange rate is influenced by various factors, which may rise or fall. "But neither going up nor down will lead to any deviation," he emphasized.
Liu Guoqiang stated that from the current perspective, although the RMB exchange rate has depreciated, it has not deviated from the fundamentals. The People's Bank of China has also taken comprehensive measures to manage expectations, and the foreign exchange market is operating steadily. Financial institutions, enterprises, and residents are rational and orderly in their foreign exchange settlement and sales behavior, and market expectations are basically stable. From the macroeconomic perspective, the fundamentals of China's long-term economic growth have not changed. With the smooth circulation of the economy and new breakthroughs in high-quality development, China's economic operation will continue to improve overall.
Looking ahead to the exchange rate trend in the second half of the year, Lian Ping, Chief Economist and Dean of the Research Institute of Zhixin Investment, believes that in the context of the interweaving of long and short factors, the RMB exchange rate may be under pressure in the short term, and it is expected to gradually stabilize in the fourth quarter.
Lian Ping said that the stabilization of China's economic fundamentals in the second half of the year is the foundation for maintaining basic stability of the RMB exchange rate; The overall balance of payments will show a certain scale of surplus, and the accelerated pace of RMB internationalization will help increase the demand for RMB in the international market.
Zhong Zhengsheng, Chief Economist of Ping An Securities, believes that the US dollar index may begin to decline by the end of the year, and China's increased macroeconomic policies are expected to boost economic recovery expectations, which is expected to promote a stable and upward trend in the RMB exchange rate.
