What signal does the macro-prudential adjustment parameter of cross-border financing raise?

　　Author: Du Chuan

　　On October 25, in order to further improve the macro-prudential management of full-scale cross-border financing, increase the sources of cross-border funds for enterprises and financial institutions, and guide them to optimize the asset-liability structure, the People's Bank of China and the State Administration of Foreign Exchange decided to classify the macro-level cross-border financing of enterprises and financial institutions. The prudent tuning parameter was increased from 1 to 1.25.

　　Why adjust this parameter?

Experts believe that the increase from 1 to 1.25 means that domestic companies and financial institutions can borrow more foreign debt.

The move by the two departments is mainly an adjustment made in response to the current economic situation.

Since the beginning of this year, the RMB exchange rate has shown two-way fluctuations.

This move can ease the pressure of RMB depreciation in the spot exchange market, and more importantly, it further releases a signal to stabilize the exchange rate, which will help stabilize market confidence and avoid excessive accumulation of RMB depreciation expectations in the short term.

　　On the same day, the central parity of the RMB against the US dollar was reported at 7.1668 yuan, down 438 basis points from 7.1230 yuan on the previous trading day (October 24), and the central parity depreciated to the lowest since February 15, 2008.

　　As of 12:00 on October 25, the US dollar was at 7.3327 against the offshore RMB, and the US dollar against the onshore RMB was at 7.3040.

　　Encourage market players to cross-border financing

　　According to my country's regulations on macro-prudential management of cross-border financing, the upper limit of the risk-weighted balance of cross-border financing is jointly determined by factors such as the capital or net assets, leverage ratio, and macro-prudential adjustment parameters of micro entities.

　　Among them, the upper limit of cross-border financing risk-weighted balance = capital or net assets * cross-border financing leverage ratio * macro-prudential adjustment parameters.

For example, when other conditions remain unchanged, when the adjustment coefficient is 1, the upper limit of the risk-weighted balance of cross-border financing of a financial institution is US$10 billion; when the coefficient is 1.25, the upper limit is US$12.5 billion.

　　Wen Bin, chief economist of China Minsheng Bank, said that the increase in the macro-prudential adjustment parameters of cross-border financing of enterprises and financial institutions this time can increase the upper limit of the risk-weighted balance of cross-border financing of enterprises and financial institutions, and encourage market players to cross-border financing.

　　Wang Qing, chief macro analyst at Orient Jincheng, believes that raising the macro-prudential adjustment parameters of cross-border financing is aimed at expanding capital inflows, including further expansion of the space for domestic institutions to borrow foreign debts, which is one of the macro-prudential management measures for cross-border capital flows.

　　Wang Qing said that the background of the introduction of this measure is that since the second half of October, due to factors such as the widening of the inversion of the Sino-US interest rate differential, the RMB has shown signs of rapid depreciation away from the trend of the US dollar, and the demand for stabilizing the exchange rate has increased.

On the one hand, this move will help increase the liquidity of the domestic dollar and ease the depreciation pressure of the renminbi in the spot exchange market. More importantly, it will further release the signal of stabilizing the exchange rate, which will help stabilize market confidence and avoid excessive accumulation of renminbi depreciation expectations in the short term.

　　prevent exchange rate fluctuations

　　The macro-prudential management of cross-border financing began in 2016, mainly by adjusting the macro-prudential parameters, so that the level of cross-border financing can be adapted to the macroeconomic enthusiasm, overall solvency and balance of payments, so as to control leverage and currency mismatch risks.

　　On March 11, 2020, in order to further expand the utilization of foreign capital, facilitate the cross-border financing of domestic institutions, and reduce the financing cost of the real economy, according to the current macroeconomic and balance of payments situation, the central bank and the foreign exchange bureau will change the macro-prudential adjustment parameters of cross-border financing from 1. Raised to 1.25.

　　In December 2020, the central bank and foreign exchange bureau adjusted the macro-prudential adjustment parameters of cross-border financing again, and lowered the macro-prudential adjustment parameter of cross-border financing of financial institutions from 1.25 to 1. Guide financial institutions to adjust the structure of foreign exchange assets and liabilities in a market-oriented manner.

　　"The policy objective of this measure is consistent with the reduction of the foreign exchange deposit reserve ratio and the increase of the foreign exchange risk reserve ratio in September, which are both to increase the friction of the fluctuation of the RMB exchange rate in stages and prevent the exchange rate from fluctuating." Wang Qing said.

　　Wen Bin also said that at present, the scale and structure of my country's external debt is reasonable, and the risk of external debt is generally controllable. Improving the macro-prudential adjustment parameters of cross-border financing of enterprises and financial institutions will not only facilitate cross-border financing of domestic institutions, but also contribute to the inflow of overseas funds. Increase the liquidity of the domestic dollar, stabilize market expectations, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

　　The two-way volatility of the exchange rate has increased significantly

　　Since the beginning of this year, in the international financial market, affected by the monetary and fiscal policies of major countries, macroeconomic data and other factors, the US dollar index has further risen, the global financial asset prices have fallen sharply, the exchange rates of major non-US currencies in the world have been under pressure, and the two-way fluctuations of the RMB exchange rate have been significantly elastic. enhanced.

　　Since the beginning of this year, the spot exchange rate of RMB against the US dollar has fallen by more than 13.9%; the RMB has appreciated by 0.89%, 4.42% and 12.17% against the euro, pound and yen respectively.

　　Recently, Pan Gongsheng, deputy governor of the People's Bank of China and director of the State Administration of Foreign Exchange, said that he will continue to deepen financial reform and opening up.

We will deepen the market-oriented reform of the exchange rate and keep the RMB exchange rate basically stable at a reasonable and balanced level.

　　Wang Qing believes that if the risk of foreign exchange market volatility increases in the later period, the regulator may also take the following specific measures to deal with it: First, increase the scale of central bank bill issuance in the Hong Kong market, tighten the liquidity of offshore RMB, and curb the depreciation of offshore RMB; The second is to reduce the macro-prudential adjustment factor for overseas lending by enterprises to control capital outflows; the third is to officially announce the restart of the counter-cyclical factor; in addition, there is still room for a reduction in the foreign exchange deposit reserve ratio.

　　Market analysts generally believe that the Fed will likely maintain a faster pace of interest rate hikes in the future, which will support the strong dollar, and also means that the inversion of the Sino-US interest rate gap may further intensify in the short term, and there may still be some depreciation pressure on the RMB.

　　Wang Qing judged that the current domestic economy has entered a relatively stable recovery process, my country's current account will maintain a large-scale surplus, and the proportion of stable exchange rates in monetary policy trade-offs has increased. Not much, before the end of the year, the renminbi will maintain a reverse fluctuation pattern similar to that of the dollar, and the risk of the renminbi's continued rapid depreciation from the dollar trend is controllable.

It should be pointed out that the current focus of stabilizing the exchange rate is not to hold a certain fixed point, so that the renminbi will continue to appreciate against other currencies following the dollar, but to maintain the basic stability of the three major renminbi exchange rate indexes and stabilize foreign exchange market expectations.