21st Century Business Herald reporter Tang Jing Beijing report
At noon on September 23, the onshore RMB exchange rate against the US dollar fell below the 7.1 mark, continuing to hit a new low in June 2020. On the morning of September 22, the offshore RMB exchange rate against the US dollar fell below the 7.1 mark, also hitting a new low since June 2020. On the news side, the Fed's September interest rate meeting released a hawkish signal that exceeded expectations. In addition to raising interest rates by 575 basis points as expected, it lowered the growth expectations of GDP from 2022 to 2024 and raised the inflation, unemployment rate and policy interest rate forecasts, implying that subsequent monetary policy will continue to tighten.
Chief macro analyst of Oriental Jincheng told 21st Century Business Herald reporter that since August, the US dollar index has risen by 5.5%, and the RMB depreciated by 5.2% against the US dollar. The three major RMB exchange rate indexes (CFETS/BIS/SDR) have shown "one rise, one flat and one decline", basically remaining stable. This means that this round of RMB exchange rate depreciation against the US dollar is mainly caused by the surge in the US dollar index, and it has a clear passive depreciation nature.
Looking ahead, the US dollar will continue to run strongly for some time due to the continued sharp interest rate hikes in the Federal Reserve and the continued risk aversion demand driven by geopolitical factors. This means that the RMB will still have a passive depreciation momentum against the US dollar before the end of the year, and it is not ruled out that the possibility of further depreciation to the range of 7.2 to 7.3 is not ruled out, but this does not mean that the RMB is in a substantial weakness, or the exchange rate risk is heating up. The depreciation of the RMB against the US dollar in the short term will not constitute an important constraint on the flexible adjustment of domestic macroeconomic policies, and measures to stabilize growth will be introduced in a timely manner.
RMB exchange rate depreciation pressure is expected to ease at the end of the year
AVIC Trust macro strategy director Wu Zhaoyin told reporters that both the onshore and offshore RMB fell below the 7.1 mark, and the main factor behind this is the continuous sharp interest rate hikes from the United States. The U.S. interest rate hike has brought about a rapid rise in U.S. Treasury yields, with the U.S. 10-year Treasury yields rising from 1.2% at the beginning of this year to 3.7% at the current level, and the U.S. two-year Treasury yields rising sharply from 0.75% at the beginning of this year to 4.13%. The interest rate spread between China and the United States has shifted from positive to negative. According to the interest rate parity theory, the RMB exchange rate against the US dollar has to bear certain depreciation pressure in this process. At present, the upward trend of interest rates in the United States has not yet ended, and from past experience, the yield on US Treasury bonds is ahead of the US federal benchmark interest rate . If the US federal benchmark interest rate peaks in the first half of next year, then the US Treasury yield will probably peak at the end of this year, and the corresponding pressure on RMB depreciation may continue until the end of this year.
However, in the long run, the main factor that determines a country's currency exchange rate is the trade balance. If a long-term large surplus occurs, the local currency will appreciate, and if a long-term large deficit occurs, the local currency will depreciate . China's status as a major manufacturing power in the global industrial division of labor has not changed, and China's long-term surplus power in the global trade pattern has not changed. Therefore, in the long run, the strong foundation of the RMB exchange rate will not change. After the short-term depreciation pressure is eliminated this year, the RMB exchange rate against the US dollar will also rebound.
Wang Qing analyzed to reporters that the current exchange rate of the US dollar against major currencies is generally around 20% higher than the trend level, and the latest data shows that the proportion of the US current account deficit to GDP in the first quarter has reached a threshold of 5.0%. This means from a fundamental perspective, the momentum of the US dollar turning downward is accumulating. He predicts that if the Federal Reserve stops hikes at the end of the first quarter of 2023, the geopolitical situation will not develop in an out-of-control direction, and the US dollar may trend downward, and the pressure on the depreciation of the RMB against the US dollar will also ease.
Central Bank may take action again to stabilize the exchange rate at any time exchange rate
Wang Qing believes that on September 5, the central bank raised the reserve ratio of foreign exchange deposits to release a signal to stabilize the exchange rate; in the future, the domestic macroeconomic is expected to maintain a stable upward momentum, and the balance of payments will continue a large surplus. This means that from the perspective of policy and fundamentals, the risk of rapid depreciation of the RMB exchange rate deviating from the US dollar trend is not high. In his opinion, once this momentum occurs, the regulators will correct the deviation by strengthening cross-border capital flow management and tightening the liquidity of the offshore market, and curbing the excessive gathering of depreciation expectations.
He pointed out that the current focus of stabilizing the exchange rate is not to maintain a fixed point and pursue the appreciation of the RMB against the US dollar, but to keep the three major RMB exchange rate indexes basically stable and stabilize foreign exchange market expectations. This is an effective response that takes into account both internal and external balance.
另据记者多方了解到，多位业内专家认为央行很有可能已经重启逆周期因子。 The "counter-cyclical factor" is a tool used by the People's Bank of China to stabilize the exchange rate by . It mainly acts on the mid-price of the RMB exchange rate against the US dollar. Its purpose is to hedge the pro-cyclical behavior of the market, which is the so-called irrational herd effect.
Zhang Ming, deputy director of the Institute of Finance of the Chinese Academy of Social Sciences, recently wrote an article saying that the latest calculations show that during the two sharp depreciation of the RMB exchange rate in 2022, the People's Bank of China has actually activated the countercyclical factor.在人民币汇率第二次急贬期间，8月30日、9月1日和2日，中国央行采用逆周期因子调升人民币对美元汇率中间价的幅度分别为0.46%、0.29%和0.22%。
据中国货币网，在岸人民币兑美元9月22日16:30收盘报7.0810，较上一交易日下跌275点。 9月23日，人民币兑美元中间价较上日调降122点至6.9920，回升至7关口以上。
A senior observer of the RMB exchange rate told reporters that the RMB mid-price has been raised by 890 basis points compared with yesterday's closing price. The mid-price is set above 7 yuan, which is likely to be a countercyclical factor enabled for adjustment.
CICC's foreign exchange research report pointed out that the RMB market has recently experienced certain pro-cyclical behavior, and some quotation banks may have actively adjusted the quotation model based on their judgment on the market situation.据其测算，8月25日至8月30日的4个交易日，人民币中间价的实际值与打开逆周期因子后的模型预测水平更加接近。
On May 26, 2017, the quotation model of the RMB exchange rate mid-price against the US dollar was adjusted from "closing price + changes in exchange rate of a basket of currencies" to "closing price + changes in exchange rate of a basket of currencies + countercyclical factors", and the "counter-cyclical factors" were born.此后，随着人民币汇率的升贬经历了两次调整，2018年1月，报价行将“逆周期因子”调整至中性；2018年8月24日，报价行重启“逆周期因子”。
The general rule is that when the foreign exchange market experiences obvious pro-cyclical fluctuations and the RMB exchange rate continues to depreciate from the economic fundamentals, the "counter-cyclical factor" will be restarted to moderately hedge against the pro-cyclical sentiment in the direction of depreciation; when the foreign exchange market tends to stabilize, the "counter-cyclical factor" will return to neutrality.
Huachuang Securities chief macro analyst Zhang Yu said that the Huachuang macro exchange rate calculation model observed a 7-day control range of countercyclical factors greater than 100bp from August 25 to September 5, indicating that the policy may guide countercyclical factors in the direction of appreciation in the near future.
The above-mentioned senior observers remind that under the downward pressure of the domestic economy, the overall policy of the central bank is likely to still enhance exchange rate flexibility and give full play to the spontaneous regulation of the exchange rate on the macro economy. Moreover, the current market does not show panic in 2015 and 2016, so the central bank may still follow the trend.此外，央行一再提醒不要预测汇率具体点位，提醒在微观层次上保持汇率中性，做好汇率风险的管理工作。如果汇率短期出现贬值预期过度聚集，央行也会适当进行管理，因为央行并不缺汇率管理工具。
张瑜指出，当前央行的汇率调控工具充足，即便面临较大的超预期冲击，央行政策空间仍较大，风险控制力较强。 The central bank's toolbox for exchange rate regulation includes such as the mid-price window guidance , regulating swap points, countercyclical factors, increasing foreign exchange derivative contract margin, significantly intervening in the spot market, reducing offshore RMB pool, strengthening capital controls, and forcing some central enterprises to settle foreign exchange. At present, only a very small part has been used.
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