Ex­perts warn as yuan dips fur­ther

Slump to low­est level in year may mark the end of ap­pre­ci­a­tion

China Daily (Canada) - - CHINA - By GAO CHANGXIN in Shang­hai and WANG WEN in Bei­jing

The yuan’s fall against the US dol­lar will dis­cour­age fund in­flows, put pres­sure on do­mes­tic liq­uid­ity, and may prompt the Chi­nese govern­ment to loosen its mon­e­tary pol­icy, ac­cord­ing to an­a­lysts.

The yuan dived to a oneyear low against the green­back at one point on Thurs­day, in a slump that may mark the end of the Chi­nese cur­rency’s decade-long ap­pre­ci­a­tion.

Af­ter clos­ing at 6.1965 against the dol l ar on Wed­nes­day, the yuan opened on Thurs­day at 6.2080. It fell to 6.2334 at one stage, the low­est since March 4, 2013, be­fore a slight re­cov­ery saw it close at 6.2275.

The fall comes as the People’s Bank of China, the cen­tral bank, set the daily ref­er­ence rate for the cur­rency 109 ba­sis points lower at 6.1460, the low­est so far this year.

The yuan has lost more than 1 per­cent against the dol­lar this month, on the back of a 1.38 per­cent record dip in Fe­bru­ary that is widely be­lieved to have been a cen­tral bank ma­neu­ver to chase away spec­u­la­tors bet­ting on one-way ap­pre­ci­a­tion of the yuan.

How­ever, on March 11, Zhou Xiaochuan, the cen­tral bank gover­nor, de­nied any in­ter­ven­tion, say­ing the yuan’s re­treat had been driven solely by mar­ket forces.

The cen­tral bank dou­bled the yuan’s daily trad­ing band against the dol­lar to 2 per­cent last weekend, in a move seen by cur­rency mar­ket ob­servers as a move to end the yuan’s steady ap­pre­ci­a­tion over the past 10 years.

Liu Dongliang, an an­a­lyst with China Mer­chants Bank, said: “The yuan will be more volatile. The era of slow and one-way ap­pre­ci­a­tion is over.”

In­vestors turned to the US dol­lar on Thurs­day af­ter Federal Re­serve Chair­woman Janet Yellen hinted at an in­ter­est rate rise next year.

The Fed an­nounced that it is scal­ing back the monthly bond-buy­ing pro­gram, known as quan­ti­ta­tive eas­ing, by an­other $10 bil­lion, to $55 bil­lion. It is widely ex­pected that it will an­nounce an end to the pro­gram in Oc­to­ber.

Yellen said at a news con­fer­ence that she sees a pe­riod of “around six months or that type of thing” be­tween the end of quan­ti­ta­tive eas­ing and the first rate in­crease, mean­ing an in­ter­est rise could come as early as March next year.

A rate rise could at­tract funds back to dol­lar as­sets and weaken emerg­ing-mar­ket cur­ren­cies, in­clud­ing the yuan.

Bank of Amer­ica Mer­rill Lynch pared its year- end fore­cast for the yuan against the dol­lar to 6.05 from 6.02, mean­ing that the yuan will see its first year- on- year de­cline since 2009.

It also ex­pects the cen­tral bank to widen the yuan’s daily trad­ing band to 4 per­cent in the sec­ond half of this year from 2 per­cent.

Stan­dard Char­tered has re­vised its end-of-June fore­cast for the yuan to 6.06 from 6.01, while main­tain­ing its year-end tar­get of 5.92, while Bar­clays has also re­duced its year-end fore­cast, to 6.05 from 5.95.

On Wed­nes­day, the cen­tral bank said Chi­nese banks’ net for­eign ex­change pur­chases to­taled 128.25 bil­lion yuan ($20.71 bil­lion) in Fe­bru­ary, in­di­cat­ing that traders and in­vestors have be­come less will­ing to hold yuan.

Net for­eign ex­change pur­chases by banks are a ma­jor source of liq­uid­ity in China, and a slow­down in such growth would mean that al­ready tight money pol­icy is be­com­ing tighter.

Zhang Zhi­wei, an an­a­lyst in Hong Kong with No­mura Se­cu­ri­ties, said in a re­search note on Thurs­day that he had seen in­creas­ing con­cern over growth among Chi­nese lenders, and fore­cast a pos­si­ble round of pol­icy eas­ing in the sec­ond quar­ter.

Chen Fengying, head of the World Econ­omy Re­search In­sti­tute at the Con­tem­po­rary In­ter­na­tional Re­la­tions Re­search In­sti­tute, said a weaker yuan will ben­e­fit ex­ports and help in­dus­tries in­clud­ing steel, tex­tiles and au­to­mo­biles.

But Chi­nese air­lines’ bal­ance sheets have been hit by the yuan’s de­pre­ci­a­tion, as they usu­ally buy planes through leased fi­nanc­ing and pay in dol­lars, but their in­come is de­nom­i­nated in yuan, ex­perts said.

Li Xiao­jin, a pro­fes­sor at China Avi­a­tion Univer­sity in Tian­jin, said that gen­er­ally speak­ing the en­tire avi­a­tion in­dus­try will lose 700 mil­lion yuan if the cur­rency de­pre­ci­ates by 1 per­cent. Con­tact the writ­ers at gaochangxin@chi­nadaily.com. cn and wang­wen@chi­nadaily.com.cn

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.