Yao Jin

  The leading factor for the narrowing of the China-US interest rate gap in this round is the "surging" of US bond interest rates.

At present, RMB assets have both safety, profitability and liquidity. Even if the interest rate gap between China and the United States narrows, it will not fundamentally reverse the hedging and investment properties of RMB assets, and the prospects of RMB assets are still improving.

  Affected by factors such as the expectation of faster rate hikes by the Federal Reserve, the interest rate gap between China and the United States has narrowed rapidly recently.

At present, the 10-year bond spread between China and the United States is around 30 basis points, which has narrowed by nearly 50 basis points since March, and has narrowed by more than 90 basis points since the beginning of the year.

The interest rate differential between China and the United States has been compressed to a historical low, arousing market concerns about my country's capital outflow and the depreciation of the RMB exchange rate.

  It should be noted that the narrowing of the bond spread between China and the United States is inevitable. The main reason is that the economic cycles of the two countries are dislocated and monetary policies are not synchronized.

my country's economic development is facing the triple pressure of demand contraction, supply shock, and weakening expectations. A prudent monetary policy is required to remain flexible and appropriate, and to keep liquidity reasonably sufficient; the US inflation rate hit a 40-year high in February, and monetary policy needs to be tightened to curb serious inflation.

  The leading factor for the narrowing of the China-US interest rate gap in this round is the "surging" of US bond interest rates.

After the March 2022 interest rate meeting, more and more Fed officials turned "hawks", especially after Fed Chairman Powell made it clear that "it is necessary to raise interest rates to more than 25bp in one or more meetings", the United States Bond interest rates have ushered in a wave of soaring.

  Whether the narrowing of the interest rate gap between China and the United States means an increase in capital outflow pressure requires specific analysis.

In fact, in addition to interest rate spreads, the factors that affect cross-border capital flows include economic growth expectations, asset security and exchange rate stability.

At present, in a complex international environment, RMB assets have both safety, profitability and liquidity. Even if the interest rate gap between China and the United States narrows, it will not fundamentally reverse the hedging and investment properties of RMB assets. The prospect of RMB assets remains unchanged. For the better.

  However, considering that the current domestic epidemic is spreading in many places, and economic and social development is facing considerable pressure, the domestic monetary policy still needs to maintain a certain level of determination.

In the short term, the key to the Sino-US interest rate gap is the trend of US bond interest rates, and the Sino-US interest rate gap may still narrow further in the short term.

As the China-U.S. interest rate gap becomes thinner, the spillover effect of U.S. bond rates on China bond rates may become more pronounced, exacerbating cross-border capital flows.

This requires financial regulatory authorities to strengthen macro-prudential management of cross-border capital flows and actively prevent and resolve related risks.

At the same time, by promoting the high-level opening of the financial market in accordance with the established rhythm, and establishing my country's expectation of opening up and the credibility of its policies, the long-term trend of foreign capital inflows into the domestic market will not fundamentally change.

  Improving exchange rate flexibility can better withstand capital flow shocks.

Practice has shown that the two-way fluctuation and increased flexibility of the RMB exchange rate can help absorb internal and external shocks, release market pressure in a timely manner, and avoid the accumulation of unilateral expectations.

Although the recent news shocks have increased the depreciation pressure of the RMB, considering that the domestic dollar liquidity is still abundant, the chance of the RMB continuing to decline is not great.

In addition, in recent years, the role of the RMB exchange rate in adjusting the macro economy and the automatic stabilizer of the balance of payments has been continuously strengthened, and the structure of my country's external assets and liabilities has been further optimized, which will help my country better adapt to the adjustment and changes of the monetary policies of developed economies.

  A strong economy means a strong currency, and the narrowing of the Sino-US interest rate gap will not change the long-term attractiveness of RMB assets.

It should be noted that long-term factors such as my country's economic fundamentals, the depth of the financial market, and system construction still play a decisive role.

As long as we make good use of the advantages of effective epidemic prevention and control and large policy space, and maintain the development momentum of stable and stable economic development, external shocks will only be temporary, and cross-border capital flows and RMB exchange rate fluctuations will eventually return. economic fundamentals.