Where Will The Renminbi Fly After "Limit"?

The RMB against the US dollar fell to 6 consecutive trading days.

By supporting the renminbi and selling part of its huge foreign exchange.

The Central Bank of China controls the RMB exchange rate in a narrow trading range, setting the middle price of the daily exchange rate with a fluctuating interval of 0.5%.

Separately, the central bank's daily pricing indicates that the renminbi has remained stable against the US dollar, and has even appreciated slightly in the past week.

But this concern will miss the intraday paction, and the real dynamic will emerge in the market.

Since last Wednesday, the exchange rate of RMB against the US dollar has reached a "lower limit" of 0.5% per day, and it has only been rebounded by the intervention of the central bank.

The renminbi has never been under the pressure of continuous selling, even at the height of the financial crisis in 2008.

"They are intervening to revalue the renminbi," said Soci e t.

Yao Wei and G n rale, an economist, said, "buyers and sellers agree on a lower price, not the price set by the PBoC."

The first sign of intervention by the central bank is China's announcement of a decline in foreign exchange reserves in September this year, the first monthly decline in more than a year.

To consolidate this situation, data show that the central bank's foreign exchange holdings declined in October this year, the first decline since 2007, and many market participants believe that this is evidence of capital outflow.

Few analysts believe that there is still much room for depreciation of the renminbi against the US dollar, which is likely to cause controversy with the US. Critics in the us insist that the yuan is still artificially depressed.

But Chinese policymakers have begun to argue that narrowing the trade surplus has pushed the yuan closer to fair market value.

This shows that this weakening of the renminbi is also for the previous adjustment of the trend of appreciation.

Foreign studies show that the RMB should appreciate by 4, which is obviously exaggerated. However, there is no way to judge the specific geometry of the RMB's equilibrium exchange rate against the US dollar.

From the recent NDF (no capital deliverable forward contracts) and other data, the renminbi will still have some depreciating space in the future, and the recent RMB cross-border trade total settlement of RMB in the offshore renminbi bond prices and other signs, also reveals the end of the market for RMB appreciation.

As we all know, the economic situation in 2011 is facing a more delicate and complicated situation. The delay of the central economic conference of China also revealed the worries of senior officials about the uncertainty prospect, and growth is bound to become a policy theme again.

Behind the "limit", we should not worry about the depreciation of the renminbi, but rather be vigilant against the potential risks of appreciation.

In the counter cyclical environment of the global economic downturn, exports are significantly more important for China.

The current net exports have already dragged 0.1 percentage points in the first three quarters of the year in China. The growth rate of exports in October was eight months low, and the worsening export situation is still increasing.

For the Chinese economy whose foreign trade dependence is over 7, the Renminbi should not continue to appreciate at present. Under the pressure of the outside world, it should at least slow down the pace of appreciation.

With the international economic turmoil, the US dollar has become the No. 1 risk aversion asset. The US dollar will continue to strengthen in the future. If the RMB continues to appreciate against the US dollar, it will surely cause the RMB to appreciate more greatly to other currencies, and the impact on exports can be imagined.

Further, RMB internationalization and RMB exchange rate reform are not equal to RMB appreciation.

In the long run, I am optimistic about the prospects for the renminbi, but in the short term, the appreciation of the renminbi is not worth the candle.

In order to avoid frequent RMB "limit down" embarrassment and external manipulation of exchange rate accusations, for those with high foreign exchange reserves, China should use the more flexible and market-oriented way to manage the RMB exchange rate: on the one hand, the pricing of the intermediate price should be more reasonable, and it should not be too far away from the trading price range; on the other hand, it can increase the two-way fluctuation range of exchange rate and promote the elasticity of RMB exchange rate, for example, it can expand from the current 5/1000 to 15/1000.