RMB stability intact, rebound possible | 外汇利息准备金率下调 人民币汇率仍将保持基本稳定

which might drop below the 7-per-dollar level.

However, the rate may rebound to about 6.9 by the end of the year because China maintains a solid trade surplus while the dollar's strength is expected to fade over time as the Fed may turn less hawkish upon slowing US inflation and economic growth, Wang said.

The comments came in as the PBOC announced on Monday that it would reduce the foreign exchange reserve requirement ratio from 8 percent to 6 percent, effective Sept 15.

The cut, which will reduce the amount of foreign exchange deposits that financial institutions must keep as reserves, is seen by some experts as a signal that the central bank is ready to take concrete measures to prevent any excessively rapid renminbi depreciation.

Such a policy signal has been reinforced by remarks of Liu Guoqiang, deputy governor of the PBOC. Noting that two-way fluctuations of the renminbi should be a kind of normalcy in the short term, Liu ruled out the possibility of one-way movements dominating the renminbi exchange rate.

"A reasonably balanced and generally stable renminbi is what we are happy to see, and we are able to support it," Liu said at a news conference on Monday.

Cheng Qiang, chief macroeconomic analyst at CITIC Securities, said the PBOC has still ample tools to stabilize the renminbi if needed, such as the countercyclical adjustment factor and the reserve requirement ratio on the trading of foreign-exchange forward contracts.

Monday's cut may inject $13.5 billion in dollar liquidity into the market. Although this amount is not big, the move can boost market confidence in the renminbi in the short term by declaring the central bank's focus on stabilizing the currency, Cheng said.

In the medium term, the room for further renminbi depreciation against the greenback should be limited, given that the US economy is gradually entering a recession while the Chinese economy is likely to see a moderate recovery, Cheng said.

Source: Ecns.cn

Editor: Gao Xin

Senior Editor: Wang Luyao

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