Recently, the RMB showed a sustained and rapid depreciation trend, and the offshore RMB exchange rate fell below 6.5% As of April 26, the offshore RMB usdcnh reported 6.6058, the first intraday decline of more than 1% since November 2020; Onshore RMB usdcny reported 6.5593 However, the central bank also made decisive moves to stabilize foreign exchange market expectations. Shortly after the offshore RMB exchange rate fell below the 6.6 mark against the US dollar, the official website of the people's Bank of China announced that since May 15, the foreign exchange deposit reserve ratio of financial institutions has been reduced by 1 percentage point, that is, the foreign exchange deposit reserve ratio has been reduced from the current 9% to 8%.
Haitong Securities Company Limited(600837) Liang Zhonghua believes that as of March 2022, the balance of foreign exchange deposits of Chinese financial institutions is about US $1050 billion, so the reduction of reserve ratio by 1 percentage point will release us $10.5 billion of liquidity. The trend of RMB exchange rate is determined by the relative change of fundamentals. Only the marginal adjustment of reserve ratio has little impact. Recently, with the sharp rise in the real interest rate of US bonds, coupled with the impact of covid-19 pneumonia on China's economy, exports fell, US dollar inflows tended to decrease, and the RMB exchange rate was also returning to fundamentals. From these two factors, the RMB exchange rate is still facing depreciation pressure.
Wu Dan, a researcher of Bank Of China Limited(601988) Research Institute, believes that the upside down of interest rate spread between China and the United States and the strong performance of the US dollar are the main reasons for this round of RMB exchange rate depreciation. The pressure of RMB depreciation may be maintained in the short term, but there is no basis for sustained depreciation.
The upside down of China US interest rate spread and the strong performance of the US dollar are the main reasons for this round of RMB exchange rate depreciation. First, the dollar index continued to rise and has "broken 100". Under the influence of the Fed's interest rate hike and other factors, the US dollar index has risen all the way above 100 since April; As of April 26, the dollar index had risen to 101.57 Second, there is a rare upside down in the interest rate spread between China and the United States, and foreign investors reduce their holdings of Chinese bonds. Since March, the interest rate spread between China and the United States has shown a continuous narrowing trend. From February to March, the amount of custody of Chinese bonds held by overseas institutions decreased to 3.57 trillion yuan, a total decrease of 165.1 billion yuan, or 4.42%. Since mid April, there has been a rare phenomenon of "interest rate inversion" in the interest rate spread of China US 10-year Treasury bonds. On April 22, the interest rate spread between China and the United States was -5.91 BPS; On March 1, the interest rate difference between China and the United States remained at 108.25 BPS; The real yield of US Treasury bonds also continued to rise, rising by 91.1% from - 0.9% on March 1 to - 0.08% on April 22. Third, the epidemic situation and other factors affect the expectations of overseas markets. The recent covid-19 mutant epidemic has caused a certain degree of negative impact on China's economy and financial market. In this context, the IMF and others lowered their expectations for China's economic growth in the second quarter, which also affected the market expectation of devaluation of the RMB exchange rate. As of April 22, the implied RMB exchange rate is expected to fall to - 1.29%.
The pressure of short-term RMB devaluation may be maintained, but there is no basis for sustained devaluation. First, cross-border capital flows are relatively stable without significant decline. On April 22, the administration of Foreign Exchange announced the data of bank foreign exchange settlement and sales in March. The surplus of foreign exchange settlement and sales in March was 26.77 billion US dollars, a year-on-year increase of 36%; From January to March, the accumulated surplus of foreign exchange settlement and sales was US $58.7 billion, and the surplus of foreign-related revenue and expenditure of bank loans was US $62.2 billion, both of which showed a reasonable balance. Second, the fundamentals of China's long-term economic development have not changed. The downward pressure on the economy caused by the epidemic and other factors will not last long, the long-term development toughness is still strong, the balance of payments structure is stable, the foreign exchange reserves are reasonably abundant, and the RMB has no basis for long-term depreciation. Third, the spot inquiry trading volume of RMB exchange rate has an upward trend. According to the spot inquiry trading volume data of the US dollar against the RMB, although it fell all the way to US $156.24 before April 18, it then turned up, rising to US $36.21 billion on April 22, up 54% from the average of US $23.507 billion in April, indicating that there is no market expectation of continuous depreciation of the RMB exchange rate.
Moderate depreciation is not a bad thing. We must pay attention to the advantages and disadvantages of exchange rate trend. On the one hand, exchange rate fluctuations need to be viewed objectively. Under the support of long-term fundamentals, the RMB exchange rate has strong elasticity. A moderate decline is a reasonable release of depreciation pressure, which is conducive to reducing the export cost of Chinese enterprises, alleviating some export pressure, and stabilizing and sustaining the trade surplus. Market entities also have relatively abundant foreign exchange liquidity, and exchange risk is controllable. By the end of March, the balance of domestic foreign exchange deposits of enterprises and other market entities had reached US $727.7 billion, an increase of US $318 compared with the end of last year. On the other hand, we need to be vigilant against the following risk factors: first, we should pay attention to the risk of capital outflow caused by the continued spillover of the Fed's interest rate hike. Due to the strong expectation of the Fed's interest rate hike and table contraction in May, there is pressure on China's capital outflow, especially the outflow risk of short-term cross-border securities (stocks and bonds) with strong liquidity. Second, we should grasp the rhythm of China's monetary policy and avoid the risk of exchange rate overshoot. Finally, the key to ensuring the stable trend of the RMB exchange rate is to continuously enhance the flexibility of the RMB exchange rate, maintain the flexibility of exchange rate adjustment, give full play to the guiding role of macro-control on the exchange rate market, ensure the long-term stability of China's macroeconomic market and provide strong fundamental support for the exchange rate.
Wang Chunying, deputy director of the State Administration of foreign exchange and spokesman, said recently that she would pay close attention to the situation of the foreign exchange market, strengthen the macro Prudential Management of cross-border capital flows, guide the orderly flow of cross-border capital, handle the balance between internal and external equilibrium, and maintain the basic stability of the people's currency exchange rate at a reasonable and balanced level.
