THE foreign exchange regulator said it has to assess the impact of trade friction on capital flows and will use “counter-cyclical” measures to respond to short-term volatility, but expressed confidence China can cope with any challenge, given its ample reserves.

Wang Chunying, spokeswoman at the State Administration of Foreign Exchange (SAFE), said Thursday the regulator “will improve and optimize macro-prudential management and micro-level market supervision on cross-border capital flows”.

“We will make counter-cyclical adjustments to cope with short-term volatility in foreign exchange markets to maintain stability in the financial system and balance in international payments,” she told a media briefing.

There was no immediate reaction to Wang’s remarks in onshore and offshore yuan markets, where the currency has weakened about 7 percent against the U.S. dollar since the end of the first quarter.

Wang said the SAFE is “paying high attention to cross-border capital flows” and the regulator “has been enriching and improving contingency plans and policy reserves.”

In May 2017, after a period of decline for the yuan, the People’s Bank of China added a secret “counter-cyclical factor” to its formula for calculating the midpoint reference rate for trading of the currency. The central bank effectively removed the x-factor at the start of this year, as the yuan rebounded.

Some analysts have speculated that the authorities may re-apply the counter-cyclical factor to dampen depreciation expectations and slow the yuan’s latest downtrend.

Wang told the briefing that China’s foreign debt levels were under control and that the SAFE would closely monitor any changes and provide policy guidance as needed. (SD-Agencies)