Economists expect stable yuan in long run despite recent slip

Xinhua
Economists said the Chinese yuan's recent slip below the 7 mark against the US dollar was overstated.
Xinhua

Economists said the Chinese yuan's recent slip below the 7 mark against the US dollar was overstated, and they remained optimistic that the currency will stabilize in the long run rather than depreciate sharply.

The yuan continued to weaken on Friday, with the central parity rate down to 7.0136 against the greenback, after breaking the 7 psychological level for the first time in more than a decade on the previous trading day, according to the China Foreign Exchange Trade System.

While market jitters emerged about the change, economists tended to believe it was not a big deal.

"Breaking the 7 mark is not bad news for investors as it will actually allow more room for the monetary policy and will prompt market expectations to become more reasonable," Hong Hao, chief China strategist at BOCOM International told Xinhua via email.

Echoing his words, Robin Xing, chief China economist at Morgan Stanley, dismissed the obsession with the 7 mark in the yuan's exchange rate against the greenback and said in a phone interview that there is no need to worry about the current fluctuations that were driven by market forces.

Despite its recent weakening, the yuan has remained strong against a basket of currencies in this year as the China Foreign Exchange Trade System showed the yuan exchange rate composite index up 0.3 percent since the beginning of 2019.

Under a much longer time line, the currency has strengthened 20 percent against the dollar over the past two decades, the strongest among major currencies in the world.

Liao Qun, chief economist of the China CITIC Bank International, believed that the yuan has as far shown resilience in face of lingering downward pressure due to external uncertainties including a worsening trade situation.

"The movement of the yuan's exchange rate year to date have basically reflected adjustments in market demand amid a changing global economic circumstance," Hong said. "Rather than one-sided appreciation, it has become much more flexible with two-way fluctuations."

Responding to market concerns, the People's Bank of China, the central bank, reiterated earlier this week that it has the experience, confidence and capability to keep the yuan's exchange rate basically stable at a reasonable and balanced level.

There is no pressure for persistent, substantive depreciation in the Chinese yuan, Xing said, adding the currency has become more flexible in face of external uncertainties.

Liao forecast the yuan will remain generally stable within a range from 6.95 to 7.15 against the greenback in this year.

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