International Monetary Fund (IMF) said on Friday that the China's Renminbi exchange rate is broadly consistent with fundamentals and desirable policies.
"The renminbi, despite moving closer to the level consistent with overall assessment, remained broadly in line with fundamentals and desirable policies," said the IMF in its latest External Sector Report released on Friday.
According to the report, in 2016, the average real effective exchange rate (REER) depreciated by about 5.1 percent compared to 2015, reflecting in part the strengthening of the U.S. dollar.
China's policies that was put in place to stabilize the growth has led to recent appreciation of the RMB, and helped to ease capital outflows and foreign exchange reserve loss, Luis Cabeddu, IMF research department's division chief said at a press briefing on Friday.
In regard to China's external sector, the IMF said that China' s external imbalances have declined considerably since the global financial crisis.
China's current account surplus declined to 1.7 percent of GDP in 2016, falling substantially from its peak of about 10 percent of GDP in 2007, according to the IMF.
The IMF expected that China's current account surplus will continue to be narrowed if the country continues to implement reforms.
Despite the declines in foreign exchange reserves in 2015 and 2016, the IMF estimated that China's current level of forex reserves to be adequate.
The IMF warned that China may face potential risks of protectionist policies by its key trading partners in the future.
In order to further reduce imbalances, the Washington-based institution suggested China to improve the social safety net, create a more market-based and robust financial system, and take measures to attract more foreign direct investment.