China confident of resolving impact from Fed tightening – forex regulator

China is confident of resolving the impact of monetary policy tightening by the U.S. Federal Reserve, the foreign exchange regulator said on Friday.

The regulator will closely monitor the pace of Fed policy adjustments, which could affect global financial markets, Wang Chunying, spokeswoman of the State Administration of Foreign Exchange (SAFE), told reporters.

“In fact, the Fed is also facing a dilemma between controlling inflation and stabilising the economy,” she added.

“We will pay close attention to external changes, assess the impact in a timely manner … to prepare to effectively prevent and mitigate external shocks.”

Investors widely expect the Fed to deliver another 75-basis-point rate hike at its policy meeting next week.

The Feds aggressive monetary tightening plans have stoked market worries over a U.S. recession. Many Asian central banks have found themselves scrambling to catch up, tightening policy to tame inflation and keep their currencies from depreciating too much.

China, along with Japan, has been a major outlier in the global tightening spree with Beijing focused on stimulating its COVID-hit economy. But investors have been worried that the widening monetary divergence could trigger capital outflows and yuan depreciation.

The yuan has weakened 6% against the charging U.S. dollar so far this year, but Wang said it would remain stable at reasonable and balanced levels in the second half.

“Judging from recent performance, although the dollar has strengthened further, the yuans stability among other major currencies has become more prominent as the domestic economy picks up,” she said.

Separately, the regulator reiterated that China is confident that overseas investors would continue to increase their holdings of yuan-denominated bonds over the long run, despite data that showed foreigners cut their holdings in June.