Yuan stead­ies

Wor­ries about large-scale cap­i­tal out­flow can be eased and mar­ket ex­pec­ta­tions ad­justed

China Daily (USA) - - FRONT PAGE - By WANG YANFEI in Hangzhou wangyan­fei@chi­nadaily.com.cn

Ex­perts ex­pect China’s cur­rency, the yuan, or ren­minbi, to stay sta­ble against other cur­ren­cies, as there is no long-term ba­sis for de­pre­ci­a­tion.

Ex­perts ex­pect the ren­minbi to re­main sta­ble against a bas­ket of cur­ren­cies as there is no long-term ba­sis for de­pre­ci­a­tion.

“De­spite short-term pres­sure due to the prospect of higher in­ter­est rates in the United States and un­cer­tain­ties in the global econ­omy, the ren­minbi does not face con­tin­u­ous de­pre­ci­a­tion pres­sure in the long run,” said Jiang Chao, an an­a­lyst with Shang­hai-based Haitong Se­cu­ri­ties.

Jiang said the im­pact on the Chi­nese cur­rency of hikes in US in­ter­est rates, which were hinted at last month by Janet Yellen, chair of the Board of Gov­er­nors of the US Fed­eral Re­serve, would not be sig­nif­i­cant, as in­vestors have di­gested the news and are aware the pace at which the Fed will raise in­ter­est rates will be slow.

Xie Yax­uan, chief econ­o­mist at China Mer­chants Se­cu­ri­ties Co, echoed this view, say­ing that the weaker dol­lar had less­ened the de­pre­ci­a­tion pres­sure on the ren­minbi since May.

“The econ­omy in the United States has yet to show strong signs of a re­cov­ery fol­low­ing the slow­down in the first half of the year,” said Xie.

Data showed the US’ gross do­mes­tic prod­uct in­creased 1.2 per­cent in the sec­ond quar­ter com­pared to the ex­pected 2.6 per­cent growth.

Although other fac­tors such as the United King­dom’s exit from the Euro­pean Union could still in­crease the de­pre­ci­a­tion pres­sure on the Chi­nese cur­rency, “it would not last for too long,” said Qu Hong­bin, chief econ­o­mist with HSBC Hold­ings.

“The mar­ket has calmed com­pared to the days around the ref­er­en­dum,” said Xie. “And in­vestors have be­come more ac­cus­tomed to the ren­minbi’s two-way volatil­ity af­ter the Chi­nese gov­ern­ment adopted a mar­ket-ori­ented ex­change rate mech­a­nism.”

“As China be­comes more in­te­grated into the global mar­ket, any out-of-ex­pec­ta­tion one-way fluc­tu­a­tion is un­likely — the global eco­nomic con­di­tions do not sup­port a sharp de­pre­ci­a­tion of the ren­minbi, and a one-way de­pre­ci­a­tion would not fa­vor the coun­try it­self,” he said, re­fer­ring to con­cerns that the Peo­ple’s Bank of China might al­low con­tin­u­ous de­pre­ci­a­tion in or­der to boost ex­ports.

In the mean­time, econ­o­mists said the ren­minbi’s of­fi­cial in­clu­sion in the In­ter­na­tional Mon­e­tary Fund’s Spe­cial Draw­ing Rights this Oc­to­ber marks a fur­ther step in China’s global eco­nomic emer­gence and it will fur­ther help sta­bi­lize the Chi­nese cur­rency.

Xie said that as more cen­tral banks hold more of the Chi­nese cur­rency in their for­eign ex­change re­serves, de­mand for ren­minbi as­sets would rise with more cap­i­tal in­flows.

“Less wor­ries over cap­i­tal out­flows would ease mar­ket ex­pec­ta­tions for a con­tin­u­ous de­pre­ci­a­tion of the ren­minbi,” he added.

Lian Ping, chief econ­o­mist with Bank of Com­mu­ni­ca­tions, said that the cur­rency is ex­pected to re­main sta­ble as long as the eco­nomic fun­da­men­tals re­main sta­ble in the sec­ond half of the year, fol­low­ing pretty good per­for­mance last month.

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