On the morning of September 24th, the State Council Information Office held a press conference where the Governor of the People's Bank of China, Pan Gongsheng, responded to questions regarding the impact of the Federal Reserve's rate cut on China's monetary policy and foreign exchange market. He stated that the Federal Reserve's rate cut of 50 basis points on September 18th marked the first reduction in interest rates after years of being in an interest rate hiking cycle. With the rate cut now a reality, the US dollar index has retreated, alleviating the depreciation pressure on the Chinese yuan.
At present, with the exception of the Bank of Japan, the monetary policies of major economies have entered a rate-cutting cycle, reducing the upward momentum of the US dollar. The US dollar index has overall declined, with a 3% drop since August, currently hovering around 101. On September 23rd, the exchange rate of the Chinese yuan against the US dollar was approximately 7.05 yuan, having appreciated by 2.4% since August.
Exchange rates represent a comparative price relationship between currencies, and they are influenced by a multitude of factors, such as economic growth, monetary policy, financial markets, geopolitical events, and sudden risk incidents, all of which can affect exchange rates. Looking externally, uncertainties remain due to the divergence in economic trends among countries, geopolitical changes such as the US elections, and fluctuations in international financial markets. Domestically, Pan Gongsheng indicated that the Chinese yuan exchange rate still has a relatively stable and solid foundation.
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He further elaborated on three levels: Macroeconomically, the trend of economic stabilization and improvement will be further consolidated and strengthened. The strong monetary policy measures introduced by the People's Bank of China will help support the real economy, promote consumer spending, and boost market confidence.
In terms of the balance of payments, it has remained essentially stable. The current account surplus to GDP ratio in the first half of the year was 1.1%, which is within a reasonable range.
Regarding the construction of the foreign exchange market, the People's Bank of China and the State Administration of Foreign Exchange place great emphasis on its development. Market participants have become more mature, and their trading behaviors have become more rational, significantly enhancing the market's resilience. In the first half of this year, the proportion of import and export enterprises engaging in hedging has reached 27%, and the proportion of cross-border settlements in goods trade conducted in Chinese yuan accounts for 30%. Overall, this means that 50% of enterprises are less affected by exchange rate risks in foreign trade exports.
Against the backdrop of the two-way floating of the Chinese yuan exchange rate, participants should also view exchange rate fluctuations rationally, strengthen the concept of risk neutrality, and avoid "betting on the direction of the exchange rate" or "betting on a one-way trend." Enterprises should focus on their main business, and financial institutions should persist in serving the real economy well.
He further stated that the People's Bank of China's stance on exchange rate policy is clear and transparent. First, it adheres to the market's decisive role in exchange rate formation and maintains exchange rate flexibility. Second, it strengthens expectation guidance to prevent the foreign exchange market from forming a one-sided consensus expectation that self-fulfilling and to guard against the risk of exchange rate over-adjustment, maintaining the basic stability of the Chinese yuan exchange rate at a reasonable and balanced level.