China takes firm steps to prevent exchange rate overshooting: central bank governor

SHANGHAI, June 19 (Xinhua) -- China has taken firm steps to prevent the risks of exchange rate overshooting, said Pan Gongsheng, governor of the People's Bank of China, on Wednesday.

The RMB exchange rate has remained basically stable in complicated circumstances, Pan said at the 15th Lujiazui Forum held in Shanghai.

Entering this year, the major advanced economies have postponed, yet again, their monetary policy reversal timing and the China-U.S. interest rate spread has continued to be relatively high, he added.

Letting the market play a decisive role in the formation of exchange rates, China's central bank has maintained the flexibility of the exchange rate, while strengthening guidance of expectations and taking firm steps to prevent the risks of exchange rate overshooting, Pan said.

Through sustained efforts over the years, China's foreign exchange market has achieved substantial progress, with market participants becoming more mature and transacting in a more rational manner, he noted.

An increasing number of business entities are using the tools for exchange rate risk hedging, Pan said, adding that as the RMB cross-border receipts and payments now account for 30 percent of trade in goods, the exposure of enterprises to currency exchange risks has been reduced.

Pan said China is also more experienced in coping with foreign exchange market fluctuations.

As major economies are gradually reversing their monetary policies this year and the dollar appreciation is weakening, the difference between the monetary policy cycles at home and abroad is narrowing, he said.

These factors combined will help keep the RMB exchange rate basically stable and balance cross-border capital flows, thereby gaining more space for China's monetary policy maneuvers, Pan said.