Central bank targets exchange rate stability

Key guidance

The idea of the need to continuously improve macroeconomic adjustment is part of Xi Jinping Thought on Socialist Economy with Chinese Characteristics for a New Era, which took shape in 2017 and has since guided the country's economic governance.

President Xi, who is also general secretary of the Communist Party of China Central Committee and chairman of the Central Military Commission, delivered a speech at the 2017 Central Economic Work Conference, emphasizing that macroeconomic adjustments require "making discretionary choices and issuing corresponding prescriptions".

Policymakers and senior advisers said the improved macroeconomic adjustment measures should include effective international macropolicy coordination, a key part of Xi's economic thought, which would help sustain China's stable economic performance and secure its development targets in the short to long term.

Central bankers worldwide are stressing the need to foster low and stable price growth, including keeping domestic currencies stable against those from overseas.

However, the logic behind moves made by central banks differs from country to country.

In the US, the Federal Reserve's revised monetary policy framework is expected to stave off potential inflationary pressures while pursuing full employment.

Lael Brainard, a member of the Federal Reserve Board of Governors, said on June 1, "In the previous monetary policy framework, the customary pre-emptive tightening based on the outlook to head off concerns about future high inflation likely curtailed critical employment opportunities for many Americans and embedded persistently below-target inflation."

Brainard is among the Fed officials worried that pulling back quantitative easing monetary policy too soon may trigger economic downside risks. The officials' dovish signals support depreciation expectations for the US dollar.

Zhu Min, chairman of the National Institute of Financial Research at Tsinghua University and a former IMF deputy managing director, said: "Whether the Fed will raise interest rates or not is a question of great relevance to all countries. As yet, it is not known how it will act."

This situation is bringing tremendous risks and uncertainties to the market, Zhu said.

"We have seen changes to inflationary expectations, albeit only preliminary and tentative changes. After the injection of the $1.9 trillion stimulus into the (US) economy, what kind of effects will it have? This requires our special attention," he added.