Malaysia Hotline: +603- 2141 8908
There is
no reason to worry about a long-term depreciation of the renminbi, a senior
official said on Thursday, after the central bank lowered the daily fixed
exchange rate to a four-year low of 6.4236 yuan per US dollar.
Wang
Yungui, head of the State Administration of Foreign Exchange's policy and
regulation department, believes that the country's strong balance of payments
position－reflected
by a large trade surplus and stable foreign direct investment－will
prevent a sharp fall in the currency.
Depreciation
pressure on the renminbi, however, might have accelerated capital outflows
since November, Wang said. Last month, foreign exchange reserves dropped by
$87.2 billion to $3.44 trillion, the lowest level since February 2013.
"That
decline in reserves can be tolerated, as well as the amount and speed of recent
cross-border capital outflows," he said.
Wang said
China is studying financial tools, such as a "Tobin tax"－a
currency transaction tax on cross-border capital－to limit outflows. Such a measure could be applied
in the future to curb potential risks when the market is further opened.
The
current depreciation pressure on the renminbi originates in part from market
expectations of an increase in the US Federal Reserve interest rate, combined
with slowing economic growth momentum in China.
The
renminbi's onshore spot rate, which was limited to a maximum 2 percent move up
or down around the reference rate, extended a five-day drop, reaching 6.4433
yuan per dollar by noon on Thursday, the lowest level since Aug 13 when the
People's Bank of China announced it would switch to a new exchange rate regime
based on the currency's real supply and demand in the market.
The yuan-to-dollar
daily reference rate dropped to 6.4140 on Wednesday－the lowest level since August 2011－influenced
by the selling pressure in both onshore and offshore markets.
It has
depreciated about 0.42 percent since it was included in the International Monetary
Fund's Special Drawing Rights basket on Nov 30.
The move
made it one of the world's five reserve currencies after it was designated
"freely usable".
Wang Ju,
a senior Asian Foreign Exchange strategist at HSBC Holdings, said, "We
believe the People's Bank of China has been more 'hands-off' after the Special
Drawing Rights announcement. This is in line with its commitment to a more
liberalized foreign exchange regime."
The
central bank's Vice-Governor Yi Gang said at a news conference after the
Special Drawing Rights announcement that the stated goal of a "free
floating" currency, without government intervention, indicated that the
foreign exchange regulator may gradually tolerate higher exchange rate
volatility.
Market
observers, however, believe the downward pressure on the renminbi is not over
yet, considering the approaching rate hike from the US Fed.
The rise
of the Fed rate will lift the US dollar's value, and increase depreciation
pressure on renminbi.
Contact us
If you have further queries, please contact Tannet
24 hours Malaysia hotline：603-21418908;
24 hours Hong Kong hotline：852-27837818;
24 hours Hong Kong hotline：86-755- 36990589;
Email: mytannet@gmail.com
TANNET GROUP : http://www.tannet-group.net, http://en.tannet.com.my