The RMB exchange rate remained basically stable at an adaptive and equilibrium level Since the beginning of 2022, cross-border capital flow...
The RMB exchange rate remained basically stable at an adaptive and equilibrium level Since the beginning of 2022, cross-border capital flows and foreign exchange supply and demand have been basically in equilibrium, and market expectations have been generally stable. The market has played a decisive role in the formation of the RMB exchange rate, and the RMB exchange rate has moved in both directions with enhanced flexibility, playing its role as an automatic stabilizer in adjusting the macro economy and the balance of payments. In Q1, based on market supply and demand, the RMB exchange rate appreciated modestly against a basket of currencies. At end-March, the China Foreign Exchange Trade System (CFETS) RMB exchange rate index and the RMB exchange rate index based on the special drawing rights (SDRs) basket closed at 104.28 and 102.11, respectively, both up 1.8 percent from end-2021.
According to calculations by the Bank for International Settlements (BIS), from end-2021 to endMarch 2022, the nominal effective exchange rate (NEER) and the real effective exchange rate (REER) of the RMB appreciated 2.2 percent and 0.6 percent, respectively, and from 2005 when reform of the exchange rate formation mechanism began to endMarch 2022, appreciation of the NEER and the REER of the RMB registered 52 percent and 59.1 percent, respectively. In Q1, the RMB exchange rate against the US dollar witnessed a slight appreciation. At end-March, the central parity of the RMB against the US dollar was 6.3482, appreciating 0.4 percent from end-2021 and 30.4 percent on a cumulative basis since the reform of the exchange rate formation mechanism in 2005. In Q1, the annualized volatility rate of the RMB against the US dollar was 2.9 percent. In Q1, cross-border RMB settlements increased 8 percent year on year to RMB9.7 trillion, with RMB receipts and payments posting RMB4.8 trillion and RMB4.9 trillion, respectively. Cross-border RMB settlements under the current account grew by 23 percent year on year to RMB2.1 trillion, among which RMB settlements of trade in goods registered RMB1.6 trillion, whereas RMB settlements of trade in services and under other items registered RMB478.3 billion. Cross-border RMB settlements under the capital account registered RMB7.6 trillion, increasing 5 percent year on year. 13 Figure 2 Monthly RMB Settlements under the Current Account Source: The People’s Bank of China. Part 2. Monetary Policy Operations In Q1 2022, with resolute implementation of the decisions and arrangements made by the CPC Central Committee and the State Council, and in line with the requirements for pursuing stability as the top priority and seeking progress while ensuring stability,
the PBC placed emphasis on the foresightedness of policy measures, kept the sound monetary policy flexible and appropriate, enhanced intertemporal adjustments, gave full play to the dual functions of monetary policy tools in adjusting the credit aggregate and structure, kept liquidity adequate at a reasonable level, strengthened stability of aggregate credit growth, further brought down actual lending rates from a relatively low basis, and guided financial institutions to ramp up support for the real economy, especially micro and small businesses (MSBs), tech innovation, and green development, thereby forcefully contributing to stabilizing the entire macro economy. I. Conducting open market operations in a flexible manner Keeping liquidity adequate at a reasonable level. In Q1, the PBC strengthened the monitoring and analysis of factors affecting liquidity supply and demand, such as cash injections during the Spring Festival, government bond issuances, and quarter-end regulatory assessments as well as development of COVID-19. The central bank made intertemporal arrangements, conducted open market operations in a flexible manner, and kept liquidity adequate at a reasonable level. Before the Spring Festival,
it launched 14 14-day reverse repos in time to release cross-festival liquidity, and it managed the operation volume in a flexible manner so as to offset short-term disruptions, such as a cash injection peak, and to meet the institutions’ cross-festival demand for liquidity. Meanwhile, by basically aligning the matured reverse repos with cash flowing back to the banking system after the Spring Festival, the PBC sought a balance of fund supply and demand, which was neither tight nor loose. After the Spring Festival, with comprehensive considerations of changes in market circumstances and expectations at home and abroad as well as with respect to COVID-19 and other factors, the central bank conducted reverse repo operations on a daily basis in the open market, and it managed the intensity and pace of these operations in a flexible manner so as to iron out short-term fluctuations, keep liquidity adequate at a reasonable level, and stabilize market expectations.
No comments