Renminbi gets foundation for stabilization

2019-07-19 08:23:43China Daily Editor : Li Yan ECNS App Download

Country's current account is in line with fundamentals, IMF economist says

China's current account with the rest of the world will remain balanced and stable this year, easing the depreciation pressure on the renminbi despite Sino-U.S. trade tensions, according to the country's foreign exchange regulator.

The trade tensions have so far had limited impact on China's cross-border capital flows, and the market's reaction was more rational in the past two months than in the second half of 2018, with fewer expectations of a weaker renminbi, Wang Chun-ying, a spokeswoman for the State Administration of Foreign Exchange, said on Thursday.

In this year's second half, the relative easing of the global monetary environment is expected to be conducive to the stable development of China's foreign exchange market, Wang said.

Her comment came after the foreign exchange administration reported $33.2 billion in net foreign exchange sales from commercial banks in the first six months, indicating a more stabilized foundation for the renminbi's value.

The current account, which records China's transactions of goods and services with the rest of the world, showed a more balanced status in the January-to-June period. A moderate current account surplus is likely to remain for the rest of the year, the spokeswoman said.

The International Monetary Fund issued an updated version of its External Sector Report on Wednesday, indicating that China's current account is closer to a balance in 2018, supported by increased exchange rate flexibility.

The country's current account surplus dropped to 0.4 percent of GDP in 2018, sharply down from 1.6 percent in 2017, and it was as high as 10 percent of GDP a decade ago, the IMF reported.

"China's current account is now broadly in line with fundamentals," said Gita Gopinath, an economist at the IMF. "The (current account surplus) decline reflected a combination of structural factors and expansionary credit and fiscal policies, but also greater exchange rate flexibility and the associated real appreciation over the last decade."

The fund, however, warned that trade actions and tensions have not yet significantly affected global current account imbalances, "as trade has been diverted to other countries with lower or no tariffs".

Despite trade tensions, economists expected China's steadily expanding economy and continued opening-up policies to offer a foundation for balanced capital flows in the coming months.

China's foreign exchange reserves expanded slightly at the end of June to $3.11 trillion, the foreign exchange administration reported, which also reflected stable capital flows, analysts said.

Wang Youxin, a researcher at the Bank of China's Institute of International Finance, said the renminbi is expected to stabilize and partially recoup earlier losses against the U.S. dollar in the second half of the year, as supportive policies will further stabilize China's growth.

The market's expectation of seeing U.S. Federal Reserve interest rate cuts may continue, Wang said. "This would give the renminbi a comparative advantage, and China is expected to stick to prudent monetary policy."

He expected China's international payments to be more balanced and stable in the second half, with a trade surplus.

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