At the beginning of 2023, the RMB (6.8784, -0.0086, -0.12%) exchange rate will usher in good news.

According to data from the China Foreign Exchange Trading Center, on January 5, the central parity rate of RMB against the US dollar was quoted at 6.8926, an increase of 205 basis points from the previous trading day, and returned to the 6.8 range again.

Why can the RMB exchange rate continue to rise?

After the RMB exchange rate rebounded at the end of last year and regained the 7.0 mark in December, the upward trend of the RMB has continued until 2023. In this regard, many analysts believe that the recent rise in the RMB exchange rate is affected by various factors.

"One of the reasons for the rise in the RMB exchange rate is the improvement in sentiment." Wang Youxin, a senior researcher at the Bank of China Research Institute, said in an interview with Zhongxin Finance and Economics that with the gradual optimization of epidemic prevention and control policies, the impact of the epidemic on economic recovery is expected to weaken. Social life will gradually return to normal, and the market has stronger confidence in economic growth in 2023.

The rise in the exchange rate is due to the support of the trading side. Around the end of the year, due to liquidity needs, foreign exchange settlement by enterprises increased. Overseas institutions have strengthened their expectations for the accelerated recovery of China's economy, and they are bullish on RMB assets, and cross-border capital inflows are also increasing.

Not only that, the boosting effect of policies is also increasing.

The People's Bank of China and the State Administration of Foreign Exchange issued an announcement on December 30 stating that starting from January 3, 2023, the trading hours of the interbank RMB foreign exchange market will be extended to 3:00 the next day Beijing time. The application period of market management systems such as market maker quotations will be extended accordingly.

On the same day, the China Foreign Exchange Trade System also adjusted the weights of the currency baskets of the CFETS RMB exchange rate index and the SDR currency basket RMB exchange rate index.

The extension of the trading hours of the inter-bank RMB foreign exchange market, the adjustment of the weight of the currency basket and the reduction of the weight of the US dollar have further optimized the exchange rate formation mechanism, expanded the depth and breadth of the foreign exchange market, and provided more opportunities for global investors to invest in RMB assets and conduct risk hedging. How convenient.

"The RMB exchange rate is less affected by the currencies of developed economies, and the independence and autonomy of exchange rate formation have been enhanced, which has further strengthened market confidence and led to a rapid rise in the exchange rate." Wang Youxin said.

How will the RMB exchange rate go in the future?

After a good start to the year, the follow-up trend of the RMB exchange rate in 2023 has also attracted much attention.

Wen Bin, Chief Economist of China Minsheng Bank, pointed out that overall, the continued recovery of China's economic fundamentals and moderate inflation in 2023 will help maintain the stability of the RMB exchange rate. Considering the fundamentals of the economy and the balance of payments, it is expected that the RMB exchange rate will show a trend of two-way fluctuations, a moderate rebound, and a gradual approach to a long-term reasonable range in 2023.

"In 2023, China's economy will start a 'restorative recovery' mode, and the main momentum of recovery will come from the elimination of factors that inhibit economic growth." Wen Bin said.

He specifically analyzed that the continuous optimization of the new crown epidemic prevention and control measures will boost consumption and investment confidence, and the endogenous power of the economy will gradually recover; real estate will gradually shift from a risk exposure period to a risk convergence period, and financing improvements and confidence recovery will become the main features. Gradually shifting to a new stage of healthy and stable development, the impact of real estate on the overall economy has begun to change from negative to neutral; inflation will remain moderate. On the one hand, the recovery of domestic demand will promote the return of the mean value of core inflation and the upward movement of the center, and on the other hand, the pressure of imported inflation will ease. , it will help limit the rise in inflation.

In 2023, it is expected that the RMB exchange rate will continue to fluctuate and rise. As the epidemic situation in various places is gradually approaching its peak and improving, activities in areas such as personnel flow, transportation, catering, and consumption will gradually resume, and market confidence will further increase. However, the economic growth pressure of economies such as Europe and the United States will accelerate, and the discussion on the slowdown or shift of monetary policy will gradually heat up.

Against the backdrop of a general recession in the global economy, the Chinese economy and RMB assets will become global highlights, attracting continued inflows of cross-border capital.