Interpretation Of The "Dirty Floating" Of The RMB Exchange Rate

The central parity of RMB against the US dollar fell to 6.5646 on Thursday, the lowest since March 2011.

In the four trading days before the new year, the closing price of the shore has dropped 1003 points to 6.5939.

The offshore market is particularly volatile, hitting 6.75 in the session.

The offshore shore remittance difference was more than 1600 points, a record.

The pition to a more flexible floating mechanism is currently on the RMB.

There are more problems than answers.

What is the anchor of the RMB exchange rate? Is it starting to track the recently released CFETS basket, or will it still be drawn by the potential target level of the US dollar? How will the central bank control the path and pace of depreciation? How dirty floating will affect monetary policy operation? If there is no effective and effective policy communication, the uncertainty surrounding these issues or the market's panic will be deepened.

We judge whether there will be a rapid or substantial adjustment in the short term.

further

The market movement seems to be accumulating.

For example, market concerns about personal concentrated foreign exchange purchase are partly plated into reality 2.

The large offshore shore to shore difference also strengthened the expected depreciation of the onshore market.

After the start of the year, the acceptable rate of exchange rate against the US dollar seems to have changed.

The central bank or intends to pass the short-term quick adjustment to break down the gradual depreciation, strengthen the depreciation expectation, and lead to more capital outflow "vicious cycle".

This change will help to release market pressure and explore the stable exchange rate level on the basis of trial and error.

We forecast that the exchange rate of RMB against the US dollar at the end of 2016 was 6.87 (previously forecast 6.50), which was 5.8% and 10.6% lower than those at the end of 2015 and August 11th.

Our assessment shows that the real effective exchange rate of RMB is overvalued by 3.1~8.6%1 at the end of 2014, and then increased by 4.5% in November 2015.

In view of the uncertainty of policy and market level in the pition to the floating mechanism, the risk premium may also increase significantly.

Continued

Market sentiment under outflow and capital market shocks is also not conducive to stabilizing the RMB exchange rate.

Nevertheless, we believe that China's economic fundamentals remain sound and will support the RMB exchange rate.

The central bank may also increase the stability of the renminbi in the future, so as to pave the way for the G20 summit in September and facilitate the operation of the SDR mechanism in October.

The pressure of RMB depreciation is not great.