The RMB exchange rate remained basically stable at an adaptive and
equilibrium level
Since the beginning of 2022, cross-border capital flows and foreign exchange supply
and demand have been basically in equilibrium, and market expectations have been
generally stable. The market has played a decisive role in the formation of the RMB
exchange rate, and the RMB exchange rate has moved in both directions with enhanced
flexibility, playing its role as an automatic stabilizer in adjusting the macro economy
and the balance of payments. In Q1, based on market supply and demand, the RMB
exchange rate appreciated modestly against a basket of currencies. At end-March, the
China Foreign Exchange Trade System (CFETS) RMB exchange rate index and the
RMB exchange rate index based on the special drawing rights (SDRs) basket closed at
104.28 and 102.11, respectively, both up 1.8 percent from end-2021.
According to
calculations by the Bank for International Settlements (BIS), from end-2021 to endMarch 2022, the nominal effective exchange rate (NEER) and the real effective
exchange rate (REER) of the RMB appreciated 2.2 percent and 0.6 percent, respectively,
and from 2005 when reform of the exchange rate formation mechanism began to endMarch 2022, appreciation of the NEER and the REER of the RMB registered 52 percent
and 59.1 percent, respectively. In Q1, the RMB exchange rate against the US dollar
witnessed a slight appreciation. At end-March, the central parity of the RMB against
the US dollar was 6.3482, appreciating 0.4 percent from end-2021 and 30.4 percent on
a cumulative basis since the reform of the exchange rate formation mechanism in 2005.
In Q1, the annualized volatility rate of the RMB against the US dollar was 2.9 percent.
In Q1, cross-border RMB settlements increased 8 percent year on year to RMB9.7
trillion, with RMB receipts and payments posting RMB4.8 trillion and RMB4.9 trillion,
respectively. Cross-border RMB settlements under the current account grew by 23
percent year on year to RMB2.1 trillion, among which RMB settlements of trade in
goods registered RMB1.6 trillion, whereas RMB settlements of trade in services and
under other items registered RMB478.3 billion. Cross-border RMB settlements under
the capital account registered RMB7.6 trillion, increasing 5 percent year on year.
13
Figure 2 Monthly RMB Settlements under the Current Account
Source: The People’s Bank of China.
Part 2. Monetary Policy Operations
In Q1 2022, with resolute implementation of the decisions and arrangements made by
the CPC Central Committee and the State Council, and in line with the requirements
for pursuing stability as the top priority and seeking progress while ensuring stability,
the PBC placed emphasis on the foresightedness of policy measures, kept the sound
monetary policy flexible and appropriate, enhanced intertemporal adjustments, gave
full play to the dual functions of monetary policy tools in adjusting the credit aggregate
and structure, kept liquidity adequate at a reasonable level, strengthened stability of
aggregate credit growth, further brought down actual lending rates from a relatively
low basis, and guided financial institutions to ramp up support for the real economy,
especially micro and small businesses (MSBs), tech innovation, and green development,
thereby forcefully contributing to stabilizing the entire macro economy.
I. Conducting open market operations in a flexible manner
Keeping liquidity adequate at a reasonable level. In Q1, the PBC strengthened the
monitoring and analysis of factors affecting liquidity supply and demand, such as cash
injections during the Spring Festival, government bond issuances, and quarter-end
regulatory assessments as well as development of COVID-19. The central bank made
intertemporal arrangements, conducted open market operations in a flexible manner,
and kept liquidity adequate at a reasonable level. Before the Spring Festival,
it launched
14
14-day reverse repos in time to release cross-festival liquidity, and it managed the
operation volume in a flexible manner so as to offset short-term disruptions, such as a
cash injection peak, and to meet the institutions’ cross-festival demand for liquidity.
Meanwhile, by basically aligning the matured reverse repos with cash flowing back to
the banking system after the Spring Festival, the PBC sought a balance of fund supply
and demand, which was neither tight nor loose. After the Spring Festival, with
comprehensive considerations of changes in market circumstances and expectations at
home and abroad as well as with respect to COVID-19 and other factors, the central
bank conducted reverse repo operations on a daily basis in the open market, and it
managed the intensity and pace of these operations in a flexible manner so as to iron
out short-term fluctuations, keep liquidity adequate at a reasonable level, and stabilize
market expectations.
