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E-mail China.org.cn, February 28, 2025
Shou Xiaoli:
Thank you, Mr. Li. The floor is now open for questions. Please identify your news outlet before asking questions. Please raise your hand to ask a question.
Market News International:
With the recent downward trend in China's treasury bond yields, the widening interest rate gap between China and the United States and increasing pressure on depreciation of the RMB, will this restrict room for monetary policy easing and its intensity? And what measures will be taken to stabilize the exchange rate? Thank you.
Xuan Changneng:
Thank you for your questions, I will answer them. The PBC implements policies primarily considering the domestic economic and financial situation, while also taking into account both internal and external balance. In 2024, the international situation was complex and fast-changing, with multiple factors driving the U.S. dollar index to fluctuate and strengthen. China's foreign exchange market has shown remarkable resilience, with the RMB exchange rate generally exhibiting a two-way fluctuation trend, maintaining basic stability under the complex circumstances. Among major currencies, it has performed relatively well, creating favorable conditions for China to independently implement monetary policies and playing a positive role in stabilizing the economy and foreign trade. At the end of 2024, the CFETS yuan exchange rate composite index, which measures the yuan's strength relative to a basket of currencies, was 101.47, up 4.2% from the end of the previous year. The closing price of the RMB against the U.S. dollar was 7.2988, a depreciation of 2.8% from the end of the previous year. During the same period, the U.S. dollar index rose by 7%, fully reflecting the resilience of the RMB.
In the coming period, the complexity, severity and uncertainty of the external environment may further increase. However, China's economic foundation is solid, its current account remains in surplus, cross-border capital flows are independently balanced, foreign exchange reserves are ample, and the foreign exchange market is resilient, providing certainty and strong support for maintaining the basic stability of the RMB exchange rate.
First, the macroeconomic landscape is more solid. Since last year, and especially since September, a package of incremental measures have been introduced and will continue to take effect. The Central Economic Work Conference laid out plans to implement a more proactive fiscal policy and moderately loose monetary policy in 2025, which will further consolidate the recovery and positive momentum of China's economy. Second, the current account has maintained a surplus for several years. In the first 11 months of 2024, the trade surplus was $884.6 billion, an increase of 18.4% year on year, providing strong support for balancing foreign exchange supply and demand. Third, cross-border capital flows have been independently balanced. We have made steady progress in opening up the financial markets, improved the facilitation for cross-border investment and financing, and attracted stable inflows of medium- and long-term capital from abroad. Fourth, the overall foreign exchange reserves remained stable, effectively serving as an anchor for national economic and financial stability. Fifth, the foreign exchange market is more resilient. Market participants have become more mature, and their trading behavior is more rational. The awareness of exchange rate risk neutrality is being continuously enhanced, and more exchange rate hedging tools are being used. These provide a very important micro-foundation for the stable operation of the foreign exchange market and the balance of foreign exchange supply and demand. At present, the RMB payments and receipts accounted for 30% in cross-border trade in goods, and the proportion of enterprises' foreign exchange hedging has reached 27%. These represent very good micro-foundations for the foreign exchange market.
The PBC has a clear and consistent exchange rate policy. The goal of maintaining the basic stability of the RMB exchange rate will not change. Over the years, we have accumulated rich experience in coping with external shocks, and we have the confidence, conditions and ability to firmly achieve this goal. In the next phase, we will continue to take comprehensive measures to enhance the resilience of the foreign exchange market, stabilize market expectations and strengthen market management. We will also firmly rectify pro-cyclical actions in the market, take strong actions against disruptions to the market order, firmly prevent the risk of exchange rate overshooting, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
Thank you.
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