<p>With the appreciation of the Renminbi exchange rate, the central bank can implement an interest rate cut policy, reduce the interest rates on existing housing loans, and support fiscal investment in areas such as manufacturing and new infrastructure. Fiscal policy will become more proactive to address consumption pressure and increase fiscal expenditure. Due to the difficulty in quickly recovering income, the issue of adjusting the deficit ratio has become urgent. The appreciation of the Renminbi exchange rate is mainly influenced by the weakening of the US dollar, and has appreciated by about 2.3% since July</p>

- Once the Renminbi exchange rate rebounds and gradually appreciates, the central bank will have more room to implement consecutive interest rate cuts. To achieve sustainable and stable rate cuts, the central bank needs to steepen the yield curve of long-term bonds to ensure long-term bond investments. Amid ongoing rate cuts, the widening gap between incremental and existing mortgage rates is increasing consumer pressure, allowing room for a decrease in existing mortgage rates.
- Additionally, fiscal policy is expected to become more proactive, potentially focusing on upgrading water conservancy, electricity, computing power, and technological manufacturing industries. There may be considerations to raise the deficit rate by year-end or introduce new quasi-fiscal tools. The Renminbi's appreciation is linked to both external factors and effective solutions to long-term issues, contributing to its stability within a certain range.
- Looking ahead, there is a possibility of further Renminbi appreciation due to continued weakening of the US dollar, intensified political uncertainty during the US elections, and potential drivers like trade surplus discrepancies leading to hidden foreign exchange reserves. The central bank's interest rate cuts may continue post Renminbi appreciation, with various strategies in place to control long-term rate declines and maintain the shape of the yield curve.

Space for Currency and Fiscal Adjustments After Exchange Rate Appreciation