File Photo:Xinhua

Experts anticipate a resilient exchange rate for the yuan, with fluctuations within a reasonable range, despite its recent decline beyond 7 per US dollar. They believe that the depreciation trend is transitional, citing favorable factors such as a strengthening Chinese economy and the potential cessation of US interest rate hikes, which will provide additional support to the exchange rate.

China's central bank on Friday set the official midpoint reference for the yuan at 7.0356 per dollar, marking the currency's weakest level since December 5, 2022.

This comes after both the onshore and offshore yuan weakened beyond 7 per US dollar on Wednesday for the first time in five months.

The offshore yuan hit 7.0458, while its onshore counterpart also weakened to 7.0305 per US dollar on Friday afternoon.

Experts said that there is no need to overly exaggerate the sentiment and a breach of the key 7 benchmark does not imply a continuation of sharp depreciation of the yuan, adding that the recent fluctuation will not undermine market confidence in the yuan as some foreign media claim.

The yuan has breached the symbolic 7 benchmark against the dollar several times before bouncing back. It is fair to say that the yuan exchange rate has become significantly more flexible after going through multiple challenges presented across complex internal and external environments, Zhou Maohua, an economist at Everbright Bank, the Global Times on Friday.

Darius Tang, Associate Director of Corporates from Fitch Bohua also told the Global Times on Friday that the logic of two-way fluctuations of yuan-dollar exchange rate remains tenable.

China's yuan is expected to experience two-way fluctuation at a reasonable and balanced level boosted by a number of domestic and external factors, analysts said.

China's economy is demonstrating a trend of steady growth, recovering further in April fueled by surging consumption, rising industrial output.

China's retail sales, a main gauge of the sector, jumped by 18.4 percent in April rising sharply from a 10.6 percent increase in March for the fastest gain since March 2021. The industrial added value of major industrial enterprises in China also rose by 5.6 percent, accelerating from 3.9 percent growth in March.

Externally, as the US Federal Reserve and other overseas central banks are expected to gradually reach the end of a period of interest rate hikes, coupled with weakening overseas fundamentals, the external pressure on the yuan exchange rate has weakened, Zhou said.

Some officials from the US Federal Reserve officials stressed the need to pause rate hikes for an extended period due to the concern that if the Fed keeps making borrowing costs ever-more expensive, it could trigger a deep recession.

While there may be some short-term fluctuations in the exchange rate, market expectations are stable, and there is no need to intervene with short-term policies , Zhou noted.

The People's Bank of China has vowed to keep the yuan exchange rate basically stable at an appropriate and balanced level in a monetary policy report for the first quarter

The report pointed out that it will adhere to the role of the market in the formation of exchange rates, enhance the flexibility of the yuan exchange rate, optimize expectation management, and maintain the basic stability of the yuan exchange rate at a reasonable and balanced level.

Global Times