"Exchange rate stabilization" signals were released intensively. On January 13, the People's Bank of China and the State Administration of Foreign Exchange announced an increase in the macro-prudential adjustment parameters for cross-border financing of enterprises and financial institutions. The China Foreign Exchange Market Steering Committee held a meeting and made it clear to the market that "the RMB exchange rate is fully qualified to maintain basic stability." At the same time, Pan Gongsheng, governor of the People's Bank of China, said that he is "confident, qualified and capable of maintaining the stable operation of the foreign exchange market", injecting a "boost" into the foreign exchange market.
Industry insiders said that my country's foreign exchange market is currently becoming more resilient and short-term fluctuations cannot change the medium- and long-term trend of the RMB exchange rate remaining basically stable. At the same time, if there is a sharp rise or fall in the RMB exchange rate that deviates from fundamentals in the future, regulators still have sufficient "reserves" in their toolbox to stabilize the foreign exchange market.
In order to further improve the macro-prudential management of full-scale cross-border financing, continue to increase the sources of cross-border funds for enterprises and financial institutions, and guide them to optimize their asset and liability structures, the People's Bank of China and the State Administration of Foreign Exchange decided on January 13 to increase the number of cross-border funds for enterprises and financial institutions. The financing macro-prudential adjustment parameter was raised from 1.5 to 1.75, which will be implemented from that day.
Wang Youxin, a senior researcher at the Bank of China Research Institute, said that raising the macro-prudential adjustment parameters for cross-border financing will directly increase the risk-weighted balance limit for cross-border financing by enterprises and financial institutions, thus encouraging market entities to increase cross-border financing. It is conducive to expanding domestic US dollar liquidity, easing the pressure on RMB depreciation, and playing a role in stabilizing the exchange rate.
The China Foreign Exchange Market Steering Committee meeting held on the same day also made it clear that the People's Bank of China and the State Administration of Foreign Exchange will continue to implement comprehensive policies to stabilize expectations, enhance the resilience of the foreign exchange market, strengthen foreign exchange market management, resolutely correct procyclical market behavior, and resolutely crack down on behavior that disrupts market order. We will handle the situation and resolutely prevent the risk of exchange rate overshooting.
After the news was released, the RMB exchange rate strengthened. The offshore RMB exchange rate against the US dollar once rebounded by nearly 100 basis points from the intraday low. The onshore RMB finally closed at 7.3314 against the US dollar, up 11 basis points from the previous trading day. The central parity rate of the RMB exchange rate in the inter-bank foreign exchange market on that day was 7.1885 yuan per US dollar, an appreciation of 6 basis points from the previous trading day.
Since 2025, the central bank has continued to speak out on the foreign exchange market. The working conference of the People's Bank of China emphasized the need to resolutely prevent the risk of exchange rate overshooting; the Monetary Policy Committee of the People's Bank of China once again proposed the "three resolutes" at the fourth quarter regular meeting of 2024; on January 9, the central bank announced that it will day in hong kong The first tranche of central bank bills in 2025 will be issued through bidding, with an issuance volume of RMB 60 billion. This is also the single largest offshore RMB central bank bill since the bidding and issuance of central bank bills began in Hong Kong in 2018. It has substantially tightened the regulations on offshore RMB bills. Onshore RMB liquidity.
Industry insiders said that regulators have released clear policy signals to stabilize the exchange rate several times in a relatively short period of time, aiming to prevent excessive accumulation of expectations of RMB depreciation in the short term and maintain the stable operation of the foreign exchange market. Data show that the fluctuations of the RMB have increased previously. On January 3, the onshore RMB exchange rate against the U.S. dollar fell below 7.3 yuan per U.S. dollar, which attracted market attention.
Pan Gongsheng, Governor of the People's Bank of China, also explained the recent depreciation of the RMB when attending the 18th Asian Financial Forum on the 13th. He said that the U.S. dollar index has been high recently, non-U.S. currencies are generally depreciating, and the RMB exchange rate against the U.S. dollar has also depreciated, but overall it has shown strong resilience.
“After years of continuous efforts, China’s foreign exchange market has made great progress. Market participants have become more mature and trading behaviors have become more rational. Currently, the proportion of cross-border receipts and payments in RMB in goods trade has reached 30%, which has reduced the exchange rate faced by enterprises. Risk exposure, the People's Bank of China and the State Administration of Foreign Exchange, as the regulator of the foreign exchange market, are more calm and experienced in facing market changes," Pan Gongsheng said.
Guan Tao, global chief economist of BOC Securities, pointed out that maintaining exchange rate flexibility and responding to shocks are normal exchange rate fluctuations, which will help release market pressure in a timely manner and converge exchange rate expectations. Currently, market operators have become more adaptable and tolerant of exchange rate fluctuations, and the foreign exchange market has become more resilient, which is the basis for increasing exchange rate flexibility.
Looking to the future, industry insiders generally believe that short-term fluctuations will not change the mid- to long-term trend of the RMB exchange rate remaining basically stable.
Pan Gongsheng emphasized that the central bank has the confidence, conditions, and ability to maintain the stable operation of the foreign exchange market. It will insist on the decisive role of the market in the formation of exchange rates, effectively play the role of the exchange rate as an automatic stabilizer for macroeconomics and the balance of payments, and at the same time resolutely monitor the market. We must correct procyclical behaviors, resolutely deal with behaviors that disrupt market order, resolutely prevent the risk of overshooting of the exchange rate, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
my country's macroeconomic market will also provide support for the RMB exchange rate. Wang Youxin predicts that the RMB exchange rate will fluctuate in both directions within a certain range throughout 2025. Despite facing external pressure in the first half of the year, China's economy has strong resilience and potential. As policies to stabilize growth are gradually implemented and intensified, policy dividends will be released at an accelerated pace in the second half of the year.
"Judging from past experience, the central bank has a sufficient toolbox to stabilize the exchange rate. For example, it can tighten the liquidity of the RMB in the offshore market and increase the cost of shorting the RMB through the issuance of central bank bills; it can also strengthen expectation management and guidance through Official statements and market expectation management tools stabilize exchange rate expectations," Wang Youxin further said.
Wang Qing, chief macro analyst of Oriental Jincheng, judged that if the RMB exchange rate deviates from the fundamentals in the future and the RMB exchange rate rises and falls sharply, the regulators will take timely measures to stabilize the foreign exchange market. Subsequently, they may choose to use macro-prudential adjustments to reduce the overseas lending of domestic enterprises. Coefficient, lowering the foreign exchange deposit reserve ratio, lowering the domestic U.S. dollar deposit interest rate, and increasing the forward foreign exchange risk reserve ratio and other policy tools. (Reporter Xiang Jiaying)
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