(Yicai Global) Jan. 8 -- The yuan will likely remain stable this year as a number of short-term factors simmer down, Sheng Songcheng, advisor to the People's Bank of China, said at the 2018 China Chief Economist Forum held in Shanghai over the weekend.

The dollar-yuan index has been going through a period of adjustment and has fallen from 6.6 to 6.5, Sheng said, adding that the rate needs to stabilize as sharp changes are bad for China. The rate will fall back a little and hover around 6.6, he believes.

The central government said in a meeting last month that the country needed to maintain its prudent monetary policy, Sheng added, saying it is important to tighten control over monetary supply and keep the exchange rate stable as they have a huge impact on the marketing.

Domestic factors have the most impact on yuan exchange rates, but there are other factors too, he continued, listing the decline of the dollar index as one reason behind short-term fluctuations of the yuan exchange rates. China has a very complicated interest rate system, which includes the policy, financial market, real economy deposit and loan interest rates, Sheng added, saying the US only has the Federal Funds Rate.

The financial market rate affects the yuan exchange rates more than others, he said. China's 10-year government bond rate increased by 1.2 percentage points last year, while its US equivalent edged up just 0.6 point., widening the gap between the Chinese and US 10-year Treasury rates to 150 base points.

Sheng opposes the central bank's current interest rate hike, which only increases the deposit and loan benchmark rates, he said. This gives financial institutions a chance to transfer costs to our real economy, which is now going through a very difficult time, he added.