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The Sino-US trade war continues to spark heated debate on whether CNY = CFXS, the exchange rate of RMB against the US dollar, will derogate from the 7-yuan integer level. However, Chinese regulators have recently repeatedly released the signal that there is no red line in the exchange rate of RMB. Where does the bottom line come from?
Analysts pointed out that the latest statement by central bank governor Yi Gang strengthened the expectation that the renminbi might break 7, but it did not mean that it would cause a significant outflow of capital that had previously been feared by the market. This is also due to China's expanding financial market opening to the outside world and the overall balance of capital flows; as long as the balance of payments is not unbalanced, the short-term depreciation of the RMB will rise without fear, even if it breaks seven for a short time, it will return. Follow-up needs to pay close attention to whether there is any change in mid-price pricing.
"This is the first time since Yi Gang took office that he denied the existence of the so-called"red line"in the RMB exchange rate. As a result, the central bank is preparing for all kinds of possible difficulties, "said Li Liu Yang, chief foreign exchange analyst at China Merchants Bank's Financial Markets Department. At present, the good news for the RMB exchange rate is that the US index has fallen back, which will ease exchange rate pressure mechanically.
In an interview with foreign media last Friday, Yi Gang said that the trade war may bring temporary depreciation pressure on the RMB, but after the noise, the RMB will return to stability. He does not think that a specific figure of the RMB exchange rate is more important. "We are very confident about the basic stability of the RMB exchange rate at a reasonable and balanced level."
Zhou Xiaochuan, the former governor of the Central Bank, also expressed his view on the RMB exchange rate at the end of May that "7" should not be regarded as the bottom line of the exchange rate. China still adheres to the exchange rate determination mechanism based on market supply and demand, and does not need to change the principle of the exchange rate formation mechanism because of the integer barrier.
The RMB plunged more than 2.5% against the US dollar in May, but the unexpected increase in the size of China's foreign exchange reserve in the same month was another proof that regulators did not intervene directly in the market. According to Li Liuyang's experience last year, if the monthly average consumption of foreign reserves or the balance of settlement and sale of foreign exchange could be maintained at a relatively reasonable level, then the exchange rate would be conditional to maintain a smooth wave. The state of motion will not change qualitatively because of the breakthrough of a certain point.
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