The RMB Exchange Rate Has Risen More Than 500 Points This Week.

The exchange rate has risen more than 1% since Monday, and this week it has risen more than 500 points, recovering all the declines in the year.

The Central Bank of China has set the RMB exchange rate high in most trading days this week, and traders say that Chinese state-owned banks are also buying renminbi to boost their value.

The financial market department of Pudong Development Bank has reported that the number of events that support RMB strengthening is increasing.

More countries including the United Kingdom, France, Germany and other countries will apply for the Asian infrastructure investment bank in China before March 31st. During the same period, the "one belt and one way" strategy will also be released, which requires RMB.

Remain strong.

Market speculation that the central bank has guided the renminbi to step up and bet on the speculators who are betting on the lower renminbi to kick the market.

This week's rally shows that China may not be eager to join the global exchange rate war.

In the exchange rate war, central banks around the world have taken actions to lower their currencies so as to boost exports.

If the renminbi is seriously devalued, it will hinder.

To achieve the goal of economic rebalancing from domestic exports to domestic consumption, China is also striving to expand the scope of its use.

The central bank's unexpected intervention is quite different from last year's practice. At that time, the Central Bank of China unexpectedly guided the devaluation of the RMB market, forcing the use of highly leveraged billions of dollars in multi position positions.

With the US dollar rising sharply in the global market and the Federal Reserve's tightening monetary policy, China's central bank has been pushing for economic growth since the two rate cut since November last year, which has reduced the attractiveness of the yuan to investors seeking higher returns.

Because the purpose of the Central Bank of China is to curb speculators, this means that the strengthening of the renminbi market is unlikely to last for a long time.

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From the point of view of monetary policy, we believe that after March, the central bank has begun to become more relaxed. This includes reducing the 7 day reverse repo rate by 10 basis points to 3.65%, continuing to do and increasing the amount of medium term structural convenience (MLF), but the 7 day repo rate Center is still around 4.8%.

We do not think that the future easing policy in the two quarter will guide short-term interest rates to come down effectively.

First of all, at the paction level, although the central bank's reverse repo can release the policy of easing policy, it is not the market interest rate decision maker because of the limited amount and discrete distribution of the open market. Similarly, although the central bank can create the basic currency through PSL and MLF, it is difficult for commercial banks to form stable expectations for the scale and timing of the funding. This makes the market participants mostly increase excess liquidity and reduce the efficiency of the lending market. Secondly, the stock market has a greater impact on the money market interest rate. On the one hand, the scale expansion of the two tier market plus leverage paction, the two financial balance in the middle of March reached 1 trillion and 340 billion, an increase of 30% compared with the beginning of the year, and the ratio of financing to buying accounted for 18% of the paction.

The high turnover of the paction or the increase of short-term financing needs; on the other hand, because the myth of "unbeaten new shares" has always existed in China, the expansion of IPO is frozen at more than 1 trillion and 500 billion yuan each time, which is also a major disturbance to the short-term interest rate. Finally, the Central Bank of China is unable to effectively identify paction or financing needs in the money market. Data show that in the second half of 2014, the average growth rate of commercial banks' repurchase balance is 20%, while the growth rate of generalized funds including credit cooperatives, funds and brokerages is as high as 57%.

From this point of view, the behavior of non banking financial institutions increased the fluctuation of money market.

Therefore, if the central bank does not restrict liquidity at low interest rates, it will undoubtedly increase the risk of excessive risk-taking by investors and make the financial market more vulnerable.

Based on the above, we still have doubts about whether the interest rate curve will return to steepy in the future.

Nevertheless, on the basis of higher short-term interest rates, it is also a sub optimal option for the government to increase the direct financing by increasing the supply of long-term bonds and stocks.

We maintain more than 1 trillion of the annual increase in IPO and so on through equity market financing.

The fourth quarter will be a period of intensive easing policy, including monetary policy reduction, reduction, acceleration of fiscal investment and relaxation of real estate sales.

Despite the strong performance of the stock market, total liquidity is still abundant, and the impact of leverage and initial public offering in financial markets is still a cautious trend for short-term interest rates to be downhill.