AtoZ Markets: The foreign exchange regulator in China is confident of countering the impact of the Federal Reserve's tightening of monetary policy, Wang Chunying, a spokeswoman for SAFE, told reporters on Friday (Jul-22).
The Fed is also faced with the dilemma of managing inflation and stabilizing the economy, she said. "We will pay close attention to external developments and evaluate their impact in a timely manner to be able to prevent and control external shocks effectively."
At its policy meeting next week, investors expect the Fed to announce another 75 basis points of rate hike. The Fed's aggressive monetary tightening plans have increased market fears about a U.S. recession.
Many Asian central banks have been scrambling to catch up, tightening policy to contain inflation and prevent their currencies from falling too far into the red. China has been a notable outlier in the global tightening spree, with Beijing focusing on stimulating its COVID-hit economy.
Investors, however, have feared the widening monetary divergence could trigger capital outflows and yuan depreciation. The yuan has lost 6 per cent against the overpriced US dollar in the first half of this year, but Wang said it would stay stable at reasonable and balanced levels in the second half.
"Although the dollar has strengthened further in recent weeks, the yuan's stability among the major currencies has become more prominent as China's economy strengthens," she said.
The regulator also reiterated that China is certain that foreign investors will continue to build their holdings of bonds denominated in yuan in the future despite evidence that suggested foreign investors cut their holdings back in June.