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March 04, 2023
Currently, China is said to be stepping up international macro policy communication and coordination. This was mentioned directly by Yi Gang, the central bank governor, during a press conference in Beijing. So this also makes the condition of the Monetary Policy-oriented.
China is said to have a role in tackling the debt burdens experienced by several countries worldwide. This is also related to China's central bank, which began to adjust monetary policy promptly and appropriately for reserve requirements.
This relates to releasing long-term liquidity, which is still an effective tool to support the economy. Meanwhile, the policymakers are now looking for support for recovery in the world's second-largest economy even though it has been affected by the slump of COVID.
Recent data shows that activity has bounced back to a better-than-expected level. Even though the pace of China's economy faces many challenges, including a weak property market and failing exports, it is still considered relatively stable for the healthy development.
"The People's Bank of China will provide forceful financial support for the stable and healthy development of the economy," said Yi Gang. He said that the structural monetary policy focuses on tech innovation, infrastructure, and China's ambitious housing.
Responding to the Central Bank, which will lower interest rates and cut the bank's reserve requirement ratios (RRR) again, then indicates China's real interest rate, which is at the appropriate level
So that the PBOC will evaluate its structural policy tools for long-term support. Meanwhile, the PBOC will likely avoid the aggressive stimulus that could increase risk capital outflows and weaken the Yuan.
This is due to the actions of the Federal Reserve, which continue to raise interest rates to fight inflation so that support for the industry is gaining traction.
China is expected to set an economic growth target of above 5 per cent for 2023. This will impact consumers and investors to reengage in business activities post-pandemic. Apart from that, this also provides a demand for support in rising geopolitical risk.
"March and April are critical times for the entire year. I think it will be a hard year, and many people expect a decline in exports," said Raymond Zhang, a Chinese economist. A new crop in the incoming sessions will also impact consumers and investors.
This is a super big intention from China's central bank and government to signal stable policy. This then makes people put their eyes on the Chinese economy. So long-term liquidity and the basis of stable currency are the most important for easing steps of interest rates.
Deputy Governor Lui Guoqiang said officials wouldn't suddenly scale back the significant stimulus. Inflation is expected to stay mild in 2023. So that the pressure from inflation is manageable and China's economy is still at a stable and aggregate stage.
With all of this, China is believed to keep the exchange rate stable. This is what is considered to help China's economy to be more durable. The central bank will keep liquidity ample and safeguard the bottom line to prevent systemic risks.
Looking at the monetary and forex sectors, it is also seen that the Chinese Yuan is outperforming for the week. The Chinese Yuan is moving more flexibly against the US Dollar. Gains in the Yuan are considered due to use in several countries for business purposes so that they can disrupt the dominance of the dollar.
The Chinese Yuan has become the most flexible moving currency in recent times. And because of the stability of the Yuan, the Central Bank is quick in making policies. So the international macro policy was changed to increase the strength of the Yuan again.
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