China’s foreign-exchange regulator said it has to assess the effect of trade friction on capital flows and plans to use “countercyclical” measures to respond to short-term volatility, but expressed confidence that Beijing could cope with any challenge, given its “ample” reserves.
The regulator “will improve and optimize macro-prudential management and micro-level market supervision on cross-border capital flows,” Chinese State Administration of Foreign Exchange (SAFE) spokeswoman Wang Chunying (王春英) said yesterday.
“We will make countercyclical adjustments to cope with short-term volatility in foreign exchange markets to maintain stability in the financial system and balance in international payments,” she told a media briefing.
The yuan has weakened about 7 percent against the US dollar since the end of the first quarter.
Since the currency had its worst month on record last month, traders and economists have been on alert for intervention or other attempts to slow its slide.
SAFE is “paying high attention to cross-border capital flows” and the regulator “has been enriching and improving contingency plans and policy reserves,” Wang said.
In May last year, after a period of decline for the yuan, the People’s Bank of China added a secret “countercyclical factor” to its formula for calculating the midpoint reference rate for trading of the currency.
The central bank effectively removed the x-factor at the beginning of this year, as the yuan rebounded.
Some analysts have speculated that the authorities might reapply the countercyclical factor to dampen depreciation expectations and slow the yuan’s latest downtrend.
Wang said that China’s foreign debt levels are under control and SAFE would closely monitor any changes and provide policy guidance as needed.
At 11:26am yesterday the yuan was trading at 6.7375 per US dollar, down about 0.25 percent from the late close on Wednesday.
China stocks yesterday fell, dragged by airliners, as the yuan dropped to a one-year low against the US dollar after news that Beijing plans to step up monetary easing measures.
China’s blue-chip CSI300 index fell 0.1 percent to 3,428.34, while the Shanghai Composite Index lost 0.5 percent to 2,772.55 points.
China’s central bank plans to introduce incentives to boost the liquidity of commercial banks, helping them expand lending and increase investment in bonds issued by cooperates and other entities, a source with direct knowledge of the matter said on Wednesday.
Meanwhile, China Banking and Insurance Regulatory Commission chairman Guo Shuqing (郭樹清), requested that commercial banks step up loan supply to private companies and small and medium-sized enterprises, in a bid to slash their funding costs and facilitate broad economic growth stability.
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