Window for further reforms open again: report
Recent two-way fluctuations in the yuan's exchange rate and other indicators such as foreign exchange data suggest that the People's Bank of China (PBOC), the central bank, has refrained from market intervention and that market forces are playing a larger role, the China Securities Journal reported on Sunday.
Furthermore, recent signals coming from top policymakers, including PBOC Governor Zhou Xiaochuan, indicate that more market reforms are imminent, the report noted.
"Though the figure for funds outstanding for foreign exchange for September has not been released, market expectations are that it's unlikely to see any significant increase," the China Securities Journal said, adding that the figure would be similar to the levels in July and August.
Funds outstanding for foreign exchange is the amount of money the central bank pays financial institutions monthly in exchange for the foreign currency they receive from trade surpluses, foreign investments and other sources, and the slight decline in the funds in the past two months suggests that "the PBOC has phased out interventions in the foreign exchange market," the report said.
In August, though the yuan appreciated 2 percent against the US dollar, the funds outstanding for foreign exchange only declined by about 800 million yuan (1.61 million), according to the report. "That's a minimal decline that can be ignored compared to the changes of billions of yuan each month two or three years ago," it said.
"If the central bank didn't intervene, the necessary conditions for the persistent rise in funds outstanding for foreign exchange would not have been met, and the funds would fluctuate around the zero level," Xie Yaxuan, head of research at China Merchant Securities, was quoted as saying in the report.
Another indication that the PBOC has ended market intervention measures is the recent two-way fluctuations in the yuan's exchange rate, according to the report.
"The more frequent and larger the two-way fluctuations of the yuan's exchange rate, the more it indicates the exchange rate is being set by market supply and demand rather than the central bank's intervention," it said.
Such positive developments in the foreign exchange market have provided a "good window for reforms in the yuan's exchange rate setting mechanism," the report added, echoing comments made by the PBOC governor last week.
In an interview with financial magazine Caijing that was published last week, Zhou said the window has opened for further reforms in the yuan's exchange rate system.