On March 31, 2016, the CFETS RMB exchange rate index closed at 98.14, losing 1.50 percent from the end of February; the RMB exchange rate index based on the BIS basket and RMB exchange rate index based on the SDR basket closed at 99.08 and 97.61 respectively, losing 1.96% and losing 0.63% from the end of February. Generally, all three indices depreciated slightly from the end of February, mainly caused by subdued global economic recovery and seasonal factors leading to relatively weak trade data of China in February, US dollar’s depreciation against other currencies, and China’s CPI year-on-year (YoY) growth rebounding in last two months. Taking the price factor into consideration, RMB’s real effective exchange rate still showed moderate appreciation. Together, RMB exchange rate remained generally stable against a basket of currencies in March 2016.
The depreciation of RMB exchange rate indices mainly occurred in middle March. In early March, the CFETS RMB exchange rate index depreciated but to a limited extent. In middle March, the market down regulated FED's rate hike expectation, US dollar continued depreciating against other currencies. This together with the drop of China’s February YoY export growth, reduction in trade surplus, and rising YoY CPI growth contributed to the CFETS RMB exchange rate index’s short-term depreciation trend, from 98.82 on March 11 to the monthly low of 98.05 on March 18. After that, with the market absorbing the effects of trade and price data, the CFETS RMB exchange rate index tended to be stable along with some appreciations. The RMB exchange rate index based on the BIS basket and RMB exchange rate index based on the SDR basket showed similar trends as the CFETS RMB exchange rate index.
In March, the characteristics of “previous close + movements of a basket of currencies” in the RMB/USD central parity's forming mechanism became more outstanding. The term “previous close + movements of a basket of currencies” means that, the daily RMB/USD central parity quotes provided by the market makers are based on the previous close rate, directly adding the implied movements of RMB/USD bilateral exchange rate in order to keep RMB exchange rate stable against a basket of currencies in the past 24 hours. Market makers take into consideration not only the CFETS basket but also the BIS and SDR basket when submitting their daily central parity quotes. Moreover, when the fluctuation of the international market increases, considering all the three baskets would effectively play the role of a filter. It can be seen from daily trade data in March that, to maintain the stability of RMB exchange rate against a basket of currencies, the RMB/USD central parity depreciated from the previous close when US dollar appreciated to other currencies, and the other way round when US dollar depreciated to other currencies. This mechanism enhances the flexibility of RMB/USD bilateral exchange rate, while maintaining the stability of market expectation and RMB exchange rate relatively stable against a basket of currencies. The average daily amplitude of RMB/USD bilateral market exchange rate in March has increased from February and reached 0.17%, which is much higher than the amplitudes of CFETS RMB exchange rate index (0.11%), the RMB exchange rate index based on the BIS basket (0.14%), and the RMB exchange rate index based on the SDR basket (0.11%).