(Economic Watch) Where will the onshore and offshore exchange rates both fall below 6.5 yuan in the future?

  China News Agency, Beijing, April 22 (Reporter Xia Bin) Observed the performance of the past three trading days, the RMB has depreciated significantly against the US dollar.

According to data from the China Foreign Exchange Trade System on the 22nd, the central parity rate of the RMB against the US dollar was reported at 6.4596, which was the third consecutive trading day downward adjustment, with a cumulative reduction of 876 basis points.

In the foreign exchange market, the spot exchange rates of the onshore and offshore RMB against the U.S. dollar both fell below 6.5, and the cumulative depreciation over the three trading days exceeded 1,100 basis points.

  Why did the renminbi fall?

"The changes in the exchange rate of the RMB against the US dollar in the past few days are mainly affected by the international financial market trend and multiple factors of market supply and demand," said Wang Chunying, deputy director of the State Administration of Foreign Exchange and spokesperson.

  At this stage, U.S. inflation is high, the Federal Reserve has frequently released hawkish signals, and the rate hikes and balance sheet reduction efforts far exceeded market expectations, boosting the dollar and U.S. bonds to rise. has also approached 3%.

  Wang Youxin, a senior researcher at the Bank of China Research Institute, said that rising U.S. bond yields will attract cross-border capital back to the U.S., boosting the dollar exchange rate trend, but it will also put pressure on other non-U.S. currencies.

Major currencies such as the yen and the euro have recently depreciated against the dollar, and the yen has hit its lowest value in 20 years.

The recent depreciation of the renminbi against the U.S. dollar has been partly driven by the strengthening of the U.S. dollar.

But unlike the yen, the yuan is supported by economic fundamentals.

  The co-chief economist of CITIC Securities clearly stated that the narrowing of the interest rate gap between China and the United States is not the dominant factor in the RMB exchange rate, and has a limited impact on the RMB exchange rate.

Similar to the background of the round of RMB depreciation in 2020, the pressure of RMB exchange rate depreciation has increased, which is mainly due to the downward pressure on economic fundamentals caused by the new crown epidemic and the strengthening of the US dollar.

"Supply chain disturbances combined with an upward trend in the U.S. dollar index may put pressure on the yuan in the short term, but there is no need to depreciate the yuan."

  What will be the impact of RMB devaluation?

"It is expected that the devaluation of the renminbi will have a limited impact on monetary policy." Mingming believes that monetary policy is mainly "me-based", and the recent RRR cut has been implemented. In the context of the opening of the balance sheet in January, considering that monetary policy needs to be taken into account both internally and externally, it is expected that the follow-up monetary policy will enter an observation period, and the focus of policy efforts may turn to fiscal and other lenient credit policies.

  Wang Youxin mentioned that the exchange rate is an automatic stabilizer for the adjustment of the balance of payments. When the situation changes, an appropriate correction will help improve the competitiveness of export products and stabilize foreign trade.

  However, Mingming also reminded that it is necessary to prevent the risk of excessive decline and overshoot of the RMB exchange rate in a short period of time.

In the financial market, although the fundamentals are generally stable, if there is a risk of overshoot in the short term, it cannot be ruled out that there will be large fluctuations in the capital market. Therefore, we should further stabilize market expectations and stabilize the operation of the entire market.

  Where will the RMB go in the future?

Liu Yaxin, a macroeconomic analyst at China Merchants Securities, believes that the narrowing and inversion of the Sino-US interest rate gap and the international capital outflow may continue for a period of time, and the RMB exchange rate will continue to face depreciation pressure.

  "But the absolute position of the Sino-US interest rate gap is not important, and the direction of change is more important." Liu Yaxin pointed out that the US economy will gradually show downward pressure as the policy tightens, which is also the only way for it to successfully suppress inflation. Bond yields may fall again, then the relative strength of China and the United States may reverse, and the pressure on RMB depreciation will ease.

  "We think (the RMB exchange rate) will continue to fluctuate in both directions, and it will remain basically stable at a reasonable and balanced level." Wang Chunying said that China's economy is relatively resilient, the long-term positive development trend has not changed, and the balance of payments structure is stable and often Accounts maintain a reasonable size surplus, and RMB assets still have long-term investment value, which will provide fundamental support for the basic stability of the RMB exchange rate.

  She also said that from the perspective of monetary policy, in recent years, China has adhered to a normal monetary policy, and has not followed the major economies to implement an extremely loose monetary policy. , compared with other economies that implement loose monetary policies, the impact of external uncertainties on the RMB exchange rate is relatively small.

  "In the next step, China will continue to implement a prudent monetary policy and enhance the flexibility of the RMB exchange rate." Wang Chunying said that the foreign exchange bureau will also pay close attention to the situation in the foreign exchange market, strengthen macro-prudential management of cross-border capital flows, and guide the orderly flow of cross-border capital. Maintain a good balance between internal and external equilibrium, and keep the RMB exchange rate basically stable at a reasonable and balanced level.

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