RMB Exchange Rate Fluctuations are Controllable and there is no Basis for Continued Depreciation

Cai Tongjuan, a researcher at Renmin University of China, pointed out that the current round of RMB exchange rate fluctuations is the result of the combined effect of economic fundamentals and the relationship between supply and demand in the currency market.
Against the background that the Fed’s interest rate hike process has not yet been fully completed, although the RMB exchange rate still has downward pressure in the short term, the volatility is controllable, and the overall operation of China’s foreign exchange market is stable, and exchange rate expectations and cross-border capital flows remain relatively stable.
In the medium and long term, the RMB exchange rate does not have the basis for long-term depreciation.
On the one hand, inflation is the most important fundamental factor affecting exchange rate changes, and the current inflation rate in China is not high, so there is still room for loose monetary policy.
On the other hand, after the central bank cuts interest rates, a series of policy combinations to help achieve the goal of stabilizing growth are still on the way.
Looking forward to the third quarter, with the help of policies, the macro economy is expected to gradually bottom out and rebound, which will support the RMB exchange rate from the economic fundamentals, thereby restoring the normal state of two-way fluctuations in the RMB exchange rate.