SHANGHAI (Reuters) – China’s central bank still has many policy tools to guide the outlook for the yuan and a sharp devaluation of the currency is unlikely, a former official at the People’s Bank of China said.
The comments by Sheng Songcheng, former head of the statistics and analysis department at the People’s Bank of China, come as the yuan has lost nearly 12% against the dollar so far this year. The US dollar has risen steadily against many currencies in light of the tight monetary tightening of the Federal Reserve.
“If the Chinese economy can stabilize and recover quickly, the spillover effect of US monetary policy will be greatly reduced,” Sheng said, expecting the yuan to trade in a range of 7.0 to 7.3 per dollar for the remainder of the year.
The COVID-19 shocks, disruptions to energy and food supplies due to the Ukraine crisis and slowing global growth have imposed strong headwinds for the world’s second largest economy.
A Reuters poll showed that the third quarter of China’s economy is likely to highlight growing challenges at home and abroad. A rebound in growth will still leave him poised for one of its worst years in nearly half a century.
The People’s Bank of China (PBOC) recently said that stabilizing the yuan is a top priority and cautioned market participants against making large one-way bets on the currency.
Sheng added that the People’s Bank of China could “resume the use of the countercyclical factor in determining the midpoint, or increase the volume of billing in the overseas market to tighten yuan liquidity when necessary” to guide market expectations.
Monetary authorities have asked local banks to revive a set of yuan stabilization tools that were abandoned two years ago as they work to defend the rapidly weakening currency, a person familiar with the yuan’s rate-setting process told Reuters in late September.
