RMB Softening In The Long Run Will Appreciate Slightly In The Long Run

< p > the people's Bank of China stated in its statement on its official website that expanding the floating range of RMB will help to increase the flexibility of exchange rate, improve the efficiency of capital allocation, and strengthen the decisive role of the market in resource allocation.

The central bank [micro-blog] also said it would maintain exchange rate stability at a reasonable equilibrium level and gradually withdraw from conventional foreign exchange intervention.

< /p >

< p > this is consistent with the recent widespread expectation of the central bank's intervention in the foreign exchange market to bridge the gap between the US dollar / RMB spot a href= "http://www.91se91.com/news/index_c.asp" > /a > the middle price. It also confirms that we believe that the recent depreciation of the people's currency is the central bank's intention to curb the unilateral appreciation of the renminbi, and as a prelude to the expansion of the floating range of the exchange rate, rather than a competitive depreciation, not a trend depreciation.

The central bank's move will help curb speculative hot money inflows and remind businesses and banks to pay more attention to exchange rate risk.

< /p >

< p > we expect that the RMB will remain weak in the near future after expanding the floating range, especially considering the background of slowing economic growth in China.

In addition, we also believe that in the short term, how the central bank can guide the middle price is a very important observation point.

A stable US dollar / RMB helps to appease the market and keep the spot exchange rate near the middle price.

< /p >

< p > If a href= "http://www.91se91.com/news/index_c.asp" > intermediate price < /a > further downward, it may trigger a greater sell-off of domestic and offshore RMB.

In view of the slowdown of China's growth and the rising concerns about domestic financial risks, we believe that the US dollar / RMB spot rate will remain unchanged or higher than the intermediate price in the next 3 months.

Recently, we have raised the US dollar / RMB's 3 and 6 month target price to 6.15 and 6.10 respectively, and the previous forecast is 6.05 and 6 respectively.

< /p >

< p > we believe that expanding the floating range of RMB is a step towards the two-way fluctuation of exchange rate rather than a direction of exchange rate.

< /p >

< p > the reasons behind the continuous appreciation of RMB over the past few years include: 1. the current account / trade surplus; 2., the long-term net inflow of foreign direct investment; and 3., in order to solve the problem of external imbalance, the Central Bank of China has guided RMB appreciation.

In view of the increasing recognition of the fact that RMB is getting closer to reasonable value, we believe that the role of the third factors is weakening, and the first two factors are still playing a great role in promoting the long-term appreciation of the RMB.

< /p >

< p > at present, China's annual "a href=" http://www.91se91.com/news/index_c.asp "current account < /a" surplus is about 200 billion US dollars (accounting for 2% of GDP), and the net inflow of foreign direct investment every year is about 170 billion US dollars.

Although the net inflow of short-term securities investment funds, which flows into the stock and bond markets, may cause the US dollar to fluctuate against the RMB exchange rate, it can not change the overall trend of the long-term appreciation of the RMB.

< /p >

< p > in addition, we believe that a steady appreciation of the RMB will become part of the broad monetary policy tool, contributing to the pformation of China's economy from investment and export to domestic demand.

We also believe that the Chinese government is unlikely to allow the renminbi to depreciate significantly, because this may seriously affect the sentiment of foreign investors and lead to continuous outflow of capital.

< /p >

< p > moreover, the long-term devaluation of the renminbi is contrary to the policy of RMB internationalization promoted by the Chinese government.

Moreover, if the depreciation of the renminbi becomes a long-term trend, the political pressure from China's main trading partners, especially the United States, is likely to rise again.

< /p >

< p > based on the above analysis, we expect that by the end of 2014, the exchange rate of RMB against the US dollar will rise slightly from 1 yuan at the beginning of the year to 6.05 yuan to 1 yuan to 6 yuan.

Therefore, taking into account the long-term trend of RMB appreciation, investors holding Renminbi can keep their positions.

< /p >