Matters:
From April 19 to April 22, 2022 (as of 18:14), the exchange rate of offshore US dollar against RMB depreciated by more than 1600 points in four trading days, reaching 6.5454, a new high since October 2021.
Ping An View:
The reasons for the recent sharp depreciation of the RMB exchange rate: 1. There are more signs of the decline of the export boom from high speed to medium speed. Since the second half of 2020, an important core of the sustained strength of the RMB exchange rate lies in the high prosperity of China's exports, which supports the inflow of foreign exchange based on the actual needs of foreign trade. 2. The downward pressure on China's economy has increased periodically, affecting the inflow of foreign capital. Since March, the marginal difference in epidemic prevention and control between China and overseas has reversed. At the same time, there have been a series of external shocks, such as the outbreak of the conflict between Russia and Ukraine, the supervision of Chinese stocks, and the Federal Reserve's rapid interest rate hike, which may trigger foreign investors' concerns about Chinese assets and lead to signs of phased withdrawal of foreign capital. 3. The "breaking 100" of the US dollar index is more involved in the formation of the RMB exchange rate. After the outbreak of the conflict between Russia and Ukraine, the US dollar index opened a new wave of rise, especially since April, driven by the sharp depreciation of the yen. Since the "August 11" exchange rate reform in 2015, the US dollar index has not operated above 100 for much time. The impact of this "breaking 100" on the expectation of RMB exchange rate is worthy of attention. 4. The exchange rate plays a more regulatory role in the differentiation of monetary policies between China and the United States. The rhythm difference of monetary policy between China and the United States will continue. As we have always stressed before, China's monetary policy should and can be "self dominated". The key is to let the RMB exchange rate play a more role in regulating internal and external balance.
We believe that the above trigger factors of RMB depreciation may still be deduced, and the RMB exchange rate may fluctuate and adjust for some time. Compared with the depreciation of the RMB exchange rate, the rhythm and range of RMB adjustment are more critical.
The next step of RMB exchange rate outlook: first, the adjustment of RMB exchange rate at a higher level may not be a bad thing. Since August 2021, the nominal effective exchange rate of RMB has broken through the previous high, and the negative impact of its continuous rise on exports can not be ignored. As another form of monetary easing, the RMB exchange rate also helps to alleviate the pressure of enterprise cash flow. Secondly, monetary policy should pay attention to the loose rhythm and avoid the overshoot of RMB exchange rate. In the past monetary policy operation of the people's Bank of China, we can see that it has different responses to different situations of RMB exchange rate depreciation. At present, the hidden worries of China's capital outflow reappear. Monetary policy can "focus on me", but we need to pay attention to the loose rhythm and avoid the overshoot of RMB exchange rate. Thirdly, the regulatory authorities should pay attention to maintaining the rhythm of foreign capital allocation of RMB assets. Actively communicate with overseas regulatory authorities, form a consensus basis for rules and systems, maintain the rhythm of stable allocation of RMB assets by foreign capital, and reduce the unexpected impact caused by non economic factors. Finally, efforts to stabilize the macroeconomic market are the most fundamental guarantee for exchange rate stability. Under the background that the conflict between Russia and Ukraine intensifies the risk of global "stagflation", if China can make greater progress in ensuring supply and stabilizing prices, it will also become a strong backing for the RMB exchange rate. We are optimistic about the prospect that China's economy will finish "bottoming" in the second quarter, which will be the foundation for the stability of the RMB exchange rate.
