2015年8月12日星期三

RMB devaluation will help China or not ?

People's Bank of China (PBC) said that the improving US economy was one of the factors weighted in its decision to devalue the yuan.
"The US economy is recovering and markets are expecting at least one interest rate hike by the FOMC (Federal Open Market Committee of the Federal Reserve) this year", a PBC spokesperson said on the bank's website on Tuesday.
The PBC also said that strengthening dollar valuation is pushing down against the Euro and Yen.
China's large trade surplus has put the yuan's (RMB) real effective exchange rate in a relatively strong position, which is not entirely consistent with market expectation, the central bank said.
"Therefore, it is good time to improve quotation of the RMB central parity to make it more consistent with the needs of market development", the spokesperson added.
According to Amy Yuan Zhuang, a senior analyst at the Nordea financial services group, Beijing has previously steered clear of devaluing the yuan because it did not want to risk volatility in both the stock and currency markets.
"If the CNY trading band is to be widened, the aim would be to show progress on financial reform", she said.
Showing progress on financial reform, flexibility, and that Chinese markets can weather crises is critical to Beijing's aim of being included as a global currency reserve.
Earlier in the year, Chinese Premier Li Keqiang said:"China will speed up the basic convertibility of yuan on the capital account and provide more facility for domestic individual cross-border investment and foreign institutional investment in China's capital market."
The International Monetary Fund, which holds the key to the Chinese yuan becoming an international reserve currency through a review of its Special Drawing Rights (SDR) basket, visited Beijing this summer for technical discussions.
The 1.9 per cent downward move by the central bank was its biggest one-day change since 1993 -- and since China abandoned its tight currency peg for a managed float in 2005. It pushed the renminbi's "daily fix" to Rmb 6.2298 against the dollar, compared with a Rmb 6.1162 rate the day before. Before Tuesday, the biggest shift this year had been a 0.16 per cent adjustment.
The People's Bank of China said the move was a one-time adjustment to reflect changes in the way it calculates the daily fix -- the rate at which the central bank sets the currency every morning and from which the currency is allowed to move as much as 2 percentage points in either direction.


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