Hedg­ing against rate risks ex­pected

China Daily - - FRONT PAGE - By CHEN JIA chen­jia@chi­nadaily.com.cn

China’s cen­tral bank may take fur­ther ac­tion to hedge against ex­change rate risks, in light of the chang­ing global sit­u­a­tion and re­cent cur­rency tur­moil in some emerg­ing mar­kets, ac­cord­ing to an­a­lysts and an of­fi­cial re­port.

Ad­di­tional mea­sures, if nec­es­sary, will be used to min­i­mize the neg­a­tive im­pact from for­eign ex­change mar­ket fluc­tu­a­tions and to main­tain the ren­minbi at a sta­ble level, in ac­cor­dance with the lat­est cen­tral bank mon­e­tary pol­icy re­port.

The Peo­ple’s Bank of China is­sued the sec­ond quar­ter mon­e­tary pol­icy re­port late on Fri­day. It stated that the cen­tral bank has paid close at­ten­tion to re­cent cross-bor­der cap­i­tal flows that have been in­flu­enced by the chang­ing global sit­u­a­tion.

An­a­lysts said the mea­sures may re­fer to some fine­tun­ing of mon­e­tary pol­icy in the fu­ture, al­though the cur­rent “pru­dent and neu­tral” mon­e­tary pol­icy re­mained un­changed in the re­port.

Any fine-tun­ing will fo­cus on “hedg­ing against ex­ter­nal un­cer­tain­ties and pos­si­ble credit crunches in some ar­eas, and strength­en­ing sup­port of the real econ­omy such as for small and mi­cro­sized en­ter­prises”, said the cen­tral bank. In the mean­time, the lever­ag­ing level or the debt ra­tio should be con­trolled with­out re­sort­ing to a strong stim­u­lus via mon­e­tary eas­ing.

An un­cer­tain global eco­nomic out­look ac­com­pa­nied by es­ca­lated trade ten­sion could fur­ther drive in­vestors’ risk aver­sion and lead to a re­treat of in­vest­ment, said the cen­tral bank re­port.

“Mea­sures should be taken to closely mon­i­tor cap­i­tal out­flows, such as re-eval­u­at­ing some over­seas de­vel­op­ment projects of State-owned en­ter­prises,” said Zhang Lianqi, a mem­ber of the Chi­nese Peo­ple’s Po­lit­i­cal Con­sul­ta­tive Con­fer- ence Na­tional Com­mit­tee and a part­ner of Rui­hua Cer­ti­fied Pub­lic Accountants.

On Fri­day, the Turk­ish lira plunged 23 per­cent to a record low against the US dol­lar. The tur­moil also put the euro un­der pres­sure when global in­vestors ex­pressed con­cern over the risk ex­po­sure of Euro­pean banks — ma­jor lenders to Turkey. The Rus­sian rou­ble also weak­ened 1.5 per­cent against the dol­lar.

Amid ex­change rate fluc­tu­a­tions in emerg­ing mar­kets, the US dol­lar in­dex reached the high­est level seen in more than a year.

China’s for­eign ex­change mar­ket is less likely to suf­fer “di­rect con­ta­gion” from the plung­ing Turk­ish cur­rency, but a sharply strength­ened US dol­lar may add de­pre­ci­a­tion pres­sure on the ren­minbi, said Guan Tao, for­mer di­rec­tor of the in­ter­na­tional pay­ments de­part­ment of the State Ad­min­is­tra­tion of For­eign Ex­change.

Ac­cord­ing to the cen­tral bank, the ren­minbi weak­ened 5 per­cent against the US dol­lar in the sec­ond quar­ter, off­set­ting its 3.9 per­cent ap­pre­ci­a­tion in the first three months.

Yu Yongding, an econ­o­mist with the Chi­nese Acad­emy of So­cial Sciences, also warned at a fo­rum over the week­end to watch out for cap­i­tal out­flows given the back­drop of some emerg­ing mar­kets’ cur­rency tur­moil. Yu added that a sharp de­pre­ci­a­tion of the ren­minbi is un­likely.

Chi­nese banks have re­cently ac­cel­er­ated is­suance of new loans, es­pe­cially those sup­port­ing in­fra­struc­ture con­struc­tion, said a state­ment from the coun­try’s fi­nan­cial sec­tor watch­dog.

In July, banks au­tho­rized 172.4 bil­lion yuan ($25.18 bil­lion) in ren­minbi loans for in­fra­struc­ture con­struc­tion projects, 46.9 bil­lion yuan more than in June, ac­cord­ing to the China Bank­ing and In­sur­ance Reg­u­la­tory Com­mis­sion.

Ac­cord­ing to pre­lim­i­nary sta­tis­tics from the CBIRC, to­tal newly is­sued ren­minbi loans stood at 1.45 tril­lion yuan last month, up 623.7 bil­lion yuan com­pared with a year ear­lier. But the fig­ure was still lower than June’s new loans of 1.84 tril­lion yuan, said the com­mis­sion.

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