(Yicai) Jan. 6 -- The People's Bank of China and the State Administration of Foreign Exchange both recently emphasized that they will maintain a policy stance of keeping the exchange rate of the Chinese yuan with the US dollar steady, as the country prepares to meet strong economic headwinds this year in the form of additional tariffs levied by the incoming US president and a stiffening US dollar.

The yuan exchange rate should be kept basically stable at a reasonable and balanced level, and the risk of overshooting should be firmly prevented, the central bank said at its annual meeting held from Jan. 3 to Jan. 4.

More efforts should be made to maintain the basic stability of the foreign exchange market, the State Administration of Foreign Exchange said at its 2025 National Foreign Exchange Management Work Conference that was held at the same time.

The monitoring and analysis of the situation should be improved, observation of and the early warning system for cross-border capital flows need to be strengthened, and counter-cyclical regulation and expectations management in the foreign exchange market should be enhanced, SAFE added.

Changes in the external environment are bringing great adverse effects, the PBOC’s monetary policy committee said at its regular fourth-quarter meeting held on Jan. 3. Although inflationary pressures have eased, the momentum of global economic growth is not strong, there are signs that the economic performance of major economies has diverged, and monetary policies have entered a cycle of interest rate cuts.

Unlike the meeting in the third quarter, when ‘enhancing exchange rate flexibility’ was emphasized, this time ‘strengthening the resilience of the foreign exchange market, stabilizing market expectations, and maintaining the basic stability of the yuan exchange rate at a reasonable level,’ were stressed, demonstrating the PBOC’s determination to keep the redback stable.

If the Trump administration launches a new round of tariff hikes, the yuan exchange rate may once again face external shocks, said Zhang Di, chief macro analyst at China Galaxy Securities. The fourth quarter meeting was to guide market expectations in a forward-looking manner.

This year, new US tariffs and significant fluctuations in the US dollar index may adversely affect the performance of the yuan, and the elasticity of the yuan exchange rate against the greenback could widen moderately, said Wen Bin, chief economist at China Minsheng Bank.

Given that China has a rich set of exchange rate management tools, the yuan rate should be supported to keep it stable and at a reasonable and balanced level. Further interest rate cuts by the US Federal Reserve will also support the yuan exchange rate to a certain extent, he added.

Both the onshore and offshore yuan tumbled past the 7.3 mark on Jan. 3, weighed down by a strong surge in the US dollar. The offshore yuan breached 7.35 that day. Last year, the yuan was up and down, with a period of depreciation, followed by rapid appreciation and then depreciation.

Editor: Kim Taylor