Central Bank and Foreign Exchange Bureau took action to stabilize market expectations before the spot exchange market opened on October 25. However, due to the sharp drop in the RMB against the US dollar, the onshore RMB exchange rate against the US dollar continued to decline, closing below the 7.30 mark for the first time since 2008.
On October 25, the spot exchange rate of RMB against US dollar opened below the 7.30 mark, hitting 7.3100 during the session, and closed at 7.3085 at 16:30, down 475 basis points from the previous trading day.
More reflecting the expectations of international investors offshore RMB against the US dollar exchange rate fell below the 7.36 mark during the trading session on October 25, and then broke the previous low.
At 9:00 on October 25, People's Bank of China and State Administration of Foreign Exchange issued an announcement before the market stating that in order to further improve the macro-prudential management of full-scope cross-border financing, increase the source of cross-border funds for enterprises and financial institutions, and guide them to optimize the asset-liability structure, it was decided to raise the macro-prudential adjustment parameters of cross-border financing of enterprises and financial institutions from 1 to 1.25.
"Upgrade the macro-prudential adjustment parameters of cross-border financing to expand capital inflows, including further expansion of domestic institutions' borrowing foreign debt space, etc., which is one of the macro-prudential management measures for cross-border capital flows. The background of the introduction of this measure is that since the second half of October, due to factors such as the expansion of the inversion of interest rate spread between China and the United States, the RMB has shown signs of rapid depreciation from the US dollar trend, and the demand for stabilizing the exchange rate has increased. On the one hand, this move is conducive to increasing domestic US dollar liquidity, easing the pressure on the depreciation of RMB in the market, and more importantly, it further releases the signal of stabilizing the exchange rate, which helps stabilize market confidence and avoid excessive gathering of expectations of RMB depreciation in the short term." Oriental Jincheng pointed out in the latest research report.
"Regulation has increased the upper limit of cross-border financing, but the actual scale of inflows remains to be seen. The actual amount of financing for enterprises still depends on their own needs. Compared with small and medium-sized enterprises, companies with better qualifications may be more likely to benefit." A person from the Financial Market Department of a certain stock bank also said that the "unexpected" mid-price of the RMB against the US dollar today was "unexpectedly" and it is necessary to pay attention to the changes in the regulatory attitude in the future.
On October 25, the RMB mid-price against the US dollar was 7.1668, a depreciation of 438 basis points, the lowest since mid-February 2008.
09 Since September, the central bank has taken three moves to open the toolbox for stabilizing the exchange rate.
htmlOn September 5, in order to improve the ability of financial institutions to use foreign exchange funds, the central bank decided to lower the reserve ratio of financial institutions' foreign exchange deposit by 2 percentage points from September 15, 2022, that is, the reserve ratio of foreign exchange deposits is lowered from the current 8% to 6%. htmlOn September 26, in order to stabilize foreign exchange market expectations and strengthen macro-prudential management of , the central bank decided to increase the foreign exchange risk reserve ratio for forward foreign exchange sales business from 0 to 20% from September 28, 2022."In response to the depreciation of RMB exchange rate , from the end of August to the present, the central bank has successively issued RMB central bank notes in Hong Kong, using two macro-prudential tools: lowering the foreign exchange reserve ratio and raising the risk reserve ratio for foreign exchange deposits , and supplemented by RMB exchange rate mid-price , guiding market expectations and transmitting a signal to stabilize exchange rate. At present, the central bank is using market-oriented means, which can only temporarily alleviate the pressure of depreciation of the RMB exchange rate." Tianfeng Securities pointed out.
Oriental Gold Cheng expects that if the risk of foreign exchange market fluctuations increases in the later period, the regulatory authorities may also take the following specific measures to deal with it: First, increase the scale of central bill issuance in the Hong Kong market, tighten offshore RMB liquidity, and curb the depreciation momentum of offshore RMB; Second, lower the macro-prudential adjustment coefficient of enterprises' overseas loans to control capital outflows; Third, officially announce the restart of countercyclical factor . In addition, the foreign exchange reserve ratio still has room for a certain amount of room for reduction.
