Three Factors To Further Depress RMB

Deutsche Bank said on Monday (January 19th) that the US dollar debt hedging, the current account surplus in the first quarter and the three reduction in the intervention of the Central Bank of China will push the renminbi to continue to depreciate.

RMB entered a round in 2014.

It has ended the years of continuous appreciation.

After the rebound in May, the trend of depreciation continued in November.

At present, the exchange rate of US dollar to RMB is about 6.22.

Deutsche Bank has cut China's 1 quarter growth forecast from 7.1% to 6.8%, on the ground that the drop in land sales may make local governments vulnerable to financial constraints, thereby affecting infrastructure investment.

However, the aggressive monetary easing in 2015 and the widening of the central government's fiscal deficit will help economic growth pick up slightly in the second half of the year, according to Deutsche Bank economist.

Deutsche Bank expects the Central Bank of China to be the two in 2015.

(25 basis points respectively), two drop points (50 basis points) respectively, while M2 growth rate rose to 14%.

Deutsche Bank still maintains a forecast of 7% of China's annual economic growth, but this goal is "heavily dependent on policy easing".

In Deutsche Bank's view, China has entered a long period of time.

The cycle will continue in 2015 and 2016, as China is facing the most severe fiscal pressure since 1981.

Deutsche Bank points out, "this is the most important risk of China's economy, and the market is not fully aware of this.

Land sales accounted for 35% of local government revenue, but land auctions dropped by 37% in 2014.

The sale of land will be delayed for two quarters over the auction, and its impact on revenue will deteriorate in 2015.

Specific to the RMB exchange rate, Deutsche Bank believes that there are three major factors to promote the continued depreciation of the RMB. First, because of the poor fundamentals and the rising credit risk, under the background of the appreciation of the US dollar, Chinese enterprises may be able to repay or hedge against the huge dollar denominated debt, resulting in RMB selling; secondly, due to seasonal factors, the current account surplus tends to decline in the first quarter; finally, the intervention of the Central Bank of China on the RMB exchange rate is relatively weakened, which means that market forces will become a more important driving force.