File photo shows the Chinese currency renminbi.(Photo: Xinhua)

The People's Bank of China (PBC), the central bank, said on Friday that it will move to correct the market's pro-cyclical and unilateral behaviors when necessary to prevent sharp fluctuations in the Chinese yuan's foreign exchange rate, reiterating that the yuan's foreign exchange rate will not be subject to  one-way fluctuation. 

The remarks from Liu Guoqiang, deputy governor of the PBC, signals Chinese policymakers' confidence in the stable exchange rate of the Chinese currency, despite recent weakening against the US dollar that sparked foreign media hype over China's economic recovery. The Chinese yuan has strengthened over the last two weeks, as the country's economic recovery continues to gain pace. 

Speaking at a press conference on the country's financial situations in the first half of 2023 on Friday, Liu said that the yuan's exchange rate will not go too far either up or down, expectations for the foreign exchange market remain stable and the yuan's exchange rate will still maintain two-way fluctuations within a  reasonable range.

In terms of future policies, the PBC will focus on management of expectations, and "correct market pro-cyclical and unilateral behavior when necessary to resolutely prevent exchange rate from fluctuating sharply," Liu said. 

Meanwhile, the Chinese yuan continued to strengthen against the US dollar, rebounding from a previous depreciation trend. On Friday, the yuan's central parity rate against the US dollar was set at 7.1318 per dollar, an upward adjustment of 209 basis points from the previous day. That represents a major rebound from a month ago, when the yuan hit a six-month low of around 7.17 per dollar. 

Over the past week, the yuan's exchanges rate, both onshore and offshore, gained more than 1 percent, according to media reports. The yuan is set to advance for a second straight week, after depreciating more than 5 percent against the US dollar over  the last quarter, according to Bloomberg, citing forecasts that the yuan could rally toward 7 per dollar. 

Previously, the yuan’s depreciation prompted many in the foreign media to hype up the pace of the Chinese economic recovery. Some had even predicted a so-called capital flight from China. But Liu said on Friday that cross-border capital flow remained generally balanced, a net inflow of overseas funds investing in Chinese bonds has been maintained and China’s foreign exchange reserves remain the world’s largest with more than $3 trillion – which all mean that the yuan’s exchange rate will not see a one-way fluctuation.

Expectations are growing that the Chinese currency will  strengthen in the second half of the year, as the Chinese economy is expected to maintain a stable recovery and the US dollar is set to weaken amid a slew of US domestic factors, from the Fed's ending of rate-cycle. 

Global Times