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China FX regulator says will use policy measures to stabilize yuan expectations

On June 13, 2023, in Hai’an, China, a bank employee counted RMB banknotes.

Xu Jinbai | Future Publishing | Getty Images

China’s foreign exchange administration said on Friday that it will use a combination of policy measures to stabilize market expectations as the yuan faces new downward pressure.

Chinese currency The yuan has fallen about 4 percent against the dollar this year, one of the worst-performing Asian currencies, pressured by a widening gap with U.S. yields and signs of a faltering economic recovery.

In recent weeks, monetary authorities have responded to the yuan’s rapid decline by stepping up efforts to defend the currency, easing rules to allow companies to borrow more overseas, adjusting daily benchmarks and state-owned banks conducting yuan purchases.

Wang Chunying, a spokesperson for the State Administration of Foreign Exchange, said that in the future, the RMB exchange rate has conditions to remain basically stable at a reasonable and balanced level.

“Tools are for use. We will adhere to comprehensive policies, focus on stabilizing expectations, and take different measures according to actual conditions to provide a stable environment and expectations for the market.”

Previous rounds of external shocks have provided regulators with experience, tools and measures to deal with such situations, she said.

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Wang Yi reiterated that the regulatory authorities will effectively prevent large fluctuations in the exchange rate, and have the foundation, capability and confidence to maintain the stable operation of the foreign exchange market.

Market participants viewed such official comments as verbal guidance on one-way bets on the yuan, whose continued weakness could prompt regulators to roll out more policy measures to support the yuan.

The onshore yuan rose to 7.1702 against the dollar from 7.1777 the previous night’s close.

Separately, foreign exchange regulators said overseas investors bought a net $79 billion worth of onshore yuan-denominated bonds in the first half of this year, reversing net outflows for all of 2022.

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