China’s central bank puts the yuan’s exchange-rate swings in crosshairs
- A stable exchange rate plays a key role in China’s position as a major importer and exporter, but the yuan has come under heavy pressure from the US dollar
China’s central bank has pledged to “resolutely guard against” excessive fluctuation in the yuan’s exchange rate, as the currency faces fresh pressure against a strong US dollar.
“[We should] maintain the basic stability of the yuan exchange rate at a reasonable and balanced level,” according to a release from the People’s Bank of China on Friday following a quarterly meeting of its monetary policy committee on Tuesday. “[The Chinese economy] still faces challenges such as insufficient demand and weak social expectations.
“We will implement prudent monetary policies accurately and effectively, paying more attention to countercyclical adjustments … to expand domestic demand, boost confidence and promote a virtuous economic cycle.”
Interest differentials have helped the US dollar strengthen against other currencies. In the past few days, China’s yuan slipped to a seven-month low against the dollar, with the spot yuan hitting 7.2659 against the dollar on Friday while the Japanese yen also weakened to a 38-year low this week, crossing the 161 mark against the dollar for the first time since 1986.
Rui Meng, a finance professor at the China Europe International Business School in Shanghai, said the PBOC has made pointed comments on the yuan’s recent depreciation pressure.
“Now that the US interest rate remains unchanged, there is downward pressure building on China’s interest rate, so there is an expectation of the yuan’s depreciation, and this expectation may be self-fulfilling,” Rui said.
