RMB Restarts Appreciation Channel To Curb Inflation

The yuan opened again last week. Appreciation channel An expert analysis said the move was intended to curb exchange rate policy. Inflationary pressure Increase.

Reporters learned from the China foreign exchange trading center last week last trading day. RMB The central parity rate for the US dollar was 6.5156, and the third consecutive trading day rewrote the new record. Since April, the exchange rate of RMB against the US dollar has increased. The exchange rate took 9 trading days from 6.56 to 6.55, while 6.54 and 6.53 took 5 trading days respectively. Last week, the RMB traded against the US dollar from 6.53 to 6.52 only 2 trading days, and the exchange rate closed to 6.5.

According to the insiders, in the context of inflation becoming the main contradiction of the current Chinese economy, a slight appreciation of the RMB may become another important monetary policy tool to resist inflation. Since last week, the central parity of RMB has broken through the two main points, and the rate of appreciation has accelerated significantly. This shows that the central bank is determined to resist inflation with exchange rate.

Hu Xiaolian, vice governor of the people's Bank of China recently published an article saying that curbing inflation is the primary task of the current prudent monetary policy. We should continue to improve the RMB exchange rate formation mechanism in accordance with the principle of initiative, controllability and gradualism, enhance exchange rate flexibility and ease the pressure of imported inflation.

According to the analysis, this may indicate that the Chinese monetary authorities have begun to adopt the exchange rate policy to reduce inflationary pressure. Speeding up the appreciation of the renminbi will help to cool prices to a certain extent, and reduce the soaring prices of China's large imports of crude oil, iron ore, soybeans and other commodities in the local currency. At the same time, it can also block the transmission of food and transportation costs to consumers.

Some institutional data show that the appreciation of the local currency has a certain effect on hedging import inflation. The research conducted by the ANZ bank shows that the appreciation of the RMB against the US dollar will result in a 3.2% decline in the PPI index in the medium term and a 0.64% decline in the non food CPI index in the medium term. Analysts say that the appreciation of RMB is more effective than PPI on CPI. {page_break}
 

"China may have to rely more on exchange rate instruments than ever before," said Mr Ba, a deputy director of the Finance Research Institute of the State Council Development Research Center. With the fall in the prices of agricultural products (000061), the inflation pressure driven by agricultural products has gradually weakened. The new driving force for future inflation will be imported inflation, which is driven by rising raw materials. The top three of China's imports will be the bulk of raw materials, oil and iron ore.

"Taking into account the characteristics of imported inflation in the current round of price rises, the renminbi will probably regain its trend before 2008, and the exchange rate elasticity will increase and the appreciation rate will accelerate. The RMB exchange rate against the US dollar will appreciate 5% to 7% in the year." Tang Jianwei, a macroeconomic analyst at Bank of Communications (601328), said in an interview with reporters.

In the forward market, on the evening of 22 nights, compared with the spot exchange rate, the US dollar versus the RMB spot exchange rate was used to measure the overseas non deliverable market expectations of overseas market for RMB appreciation. The market thinks that the appreciation rate of RMB is 2% to 3% a year, and the appreciation expectation is enhanced.

However, Guan Tao, director of the balance of Payments Division of the State Administration of foreign exchange, wrote on the website of the central bank recently that there is no basis for the continued appreciation of the RMB.

Guan Tao believes that the reason why the appreciation of RMB is not expected is mainly because the exchange rate mechanism is rigid and external reserves continue to increase significantly. However, the RMB exchange rate is gradually approaching the equilibrium level. Guan Tao pointed out that we should reduce the growth of foreign exchange reserves by increasing exchange rate flexibility and gradually opening up capital account and so on, so as to cope with the current inflation problem.

At the same time, he pointed out in his article that developing countries and emerging markets are generally afraid of exchange rate fluctuations. "RMB exchange reform should overcome the floating phobia". "Too much emphasis on exchange rate stability is to change the exchange rate from tools to targets and to alienate the exchange rate policy." He also said that the gradual expansion of RMB cross-border pricing and settlement, that is, the "going out" of the renminbi, would help to reduce China's over reliance on the international reserve currency such as the US dollar and reduce its exposure to external risks, but this initially replaced foreign exchange payments to a certain extent and increased capital inflow.