Monetary Policy Space Is Being Tested

< p > < strong > < a > href= > http://www.91se91.com/news/index_cj.asp > cross border capital > /a > flow or reversing < /strong > /p >

< p > policy makers have repeatedly highlighted the negative impact of excessive accumulation of foreign exchange reserves.

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< p > China safe 12 said that the direct and indirect gains of China's huge foreign exchange reserves have not been enough to offset the problems and costs arising from it.

In May this year, Premier Li also said: "a lot of foreign exchange reserves are already a big burden for us, because it will become the basic currency of our country and will affect inflation."

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< p > "this means that the government's attitude towards capital inflow will change."

Zhu Haibin, chief economist of J.P. Morgan, said that the asymmetrical preference of "capital inflow" but "a href=" http://www.91se91.com/news/index_cj.asp "capital outflow < /a >" has been balanced in the past ".

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P is related to the dynamic change in the direction of capital flows in the past three months, when the RMB a href= "http://www.91se91.com/news/index_cj.asp" > exchange rate < /a >.

In 2013, the renminbi appreciated by 2.8% against the US dollar. However, since the beginning of 2014, the value of the RMB has depreciated by 3%, mainly from the middle of February to the end of April.

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< p > according to the estimate of JP Morgan, the "hot money" movement has changed to a net outflow of 8 billion 200 million US dollars in April, while in February it was the peak of recent inflow and up to US $35 billion 400 million.

The calculation method of "hot money" flows here is the net foreign exchange purchase position of banks, and the adjustment of trade flows and foreign direct investment.

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The above indications suggest that cross border capital flows have shifted from "inflow slowdown" to "net outflow" since February, P.

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In June 13th, the issue of "hot money" affecting foreign reserves was resolved by P. China could not rely on the control of "hot money" to reduce the surplus of the balance of payments. The safe also said it would continue to strengthen the regulation of cross-border capital flows, improve contingency plans and prevent risks arising from two-way capital flows, and reiterated that it would further explore ways to use foreign exchange reserves to invest and improve efficiency.

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Besides P, the driving factors behind the growth of foreign exchange reserves in the first quarter of 2014 are also different from those in the fourth quarter of 2013.

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< p > "despite the slight depreciation of the RMB against the US dollar since mid February, about half of the new foreign exchange reserves in the first quarter came from capital inflows other than FDI (foreign direct investment)".

Wang Tao, a Chinese economist at UBS, said.

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< p > Wang Tao expects that the volatility of cross border capital flows will become more apparent in 2014 as China accelerates capital account liberalization, increases the RMB's appreciation from steady appreciation to increase volatility and moderate depreciation, and the global market responds to the exit of QE.

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< p > < strong > monetary policy space or limited < /strong > < /p >

< p > at present, the market view is of the view that because the current account surplus is still considerable, there is still a large amount of FDI net inflow, and there is still a significant spread between the offshore and offshore markets, and the possibility of significant depreciation of the RMB is not large.

At the same time, policymakers are unlikely to allow significant devaluation of the renminbi.

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< p > however, due to the short term weakening of the RMB and the continuous decline in capital inflows, the growth of reserve currencies driven mainly by the accumulation of foreign exchange reserves will slow down, which makes the central bank's "fine tune" oriented monetary policy space tested.

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< p > "lowering the deposit rate will help to increase the monetary multiplier so as to maintain the steady growth of M2 money supply."

Zhu Haibin further explained that the forecast of deposit rate should not be interpreted as a major change in monetary policy stance.

On the contrary, it is a neutral sterilization operation, or according to the central bank's statement, it is a fine adjustment of monetary policy.

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< p > at present, JP Morgan expects two rounds of deposit reserve rate reduction this year, each with 50 basis points, one in the third quarter and another in the fourth quarter.

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< p > and the central bank unexpectedly raised the central parity of RMB in June 9th, which is higher than the 0.22% of the previous trading day. The increase was the largest in 20 months.

It is widely believed that this is related to the larger trade surplus in May, which reached $35 billion 900 million in May and nearly doubled in April.

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"P >" higher prices in the short term will trigger more dollar pactions.

On the one hand, companies with large US dollar liabilities may start buying dollars to reduce exposure. On the other hand, exporters may sell more dollars because of increased export orders.

As a result, market volatility is likely to rise.

As the volatility of the renminbi is still substantially lower than the other major currencies, it is also a good development. "

Liu Ligang, chief economist of Australia New Bank, said.

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< p > Liu Ligang added that as the market volatility increases, the central bank can reduce its intervention in the market and make more use of open market operations to implement monetary policy.

This will also make China take an important step towards a more perfect monetary policy system.

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