Financial World News on September 28th offshore RMB fell below the 7.2 mark against the US dollar, falling nearly 300 points in the day. The RMB mid-price announced earlier showed that the RMB mid-price against the US dollar was 7.1107, down 385 points; the mid-price on the previous trading day was 7.0722, the official closing price on the previous trading day was 7.1580, and the closing price on the previous day was 7.1800.
Central Bank consecutive moves
On September 26, the central bank announced that in order to stabilize foreign exchange market expectations and strengthen macro-prudential management of , the central bank decided to increase the foreign exchange risk reserve ratio of forward foreign exchange sales business from 0 to 20% from September 28.
The so-called forward foreign exchange sales business is to expect the depreciation of the RMB in the future, so locks the exchange rate in advance, and settles at the current exchange rate at the agreed time in the future, which can avoid the risk of shrinkage brought by the depreciation of the RMB on assets.
Increase the foreign exchange risk reserve ratio , which means that when handling forward foreign exchange sales business, banks must pay a certain amount of foreign exchange risk reserves. It was zero in the past, but now it has increased to 20%. This means that when the RMB short sellers are short, there are foreign exchange reserve restrictions and cannot short at zero cost, which will greatly hit the short sellers.
On September 5, the central bank decided to lower the reserve ratio of foreign exchange deposits in financial institutions by 2 percentage points from September 15, 2022, that is, the reserve ratio of foreign exchange deposits is lowered from the current 8% to 6%.
The foreign exchange deposit reserve ratio is reduced to release more foreign exchange liquidity, while increasing the foreign exchange risk reserve ratio is to increase the cost of short selling, and the purpose is to reverse the trend of rapid depreciation of the RMB.
There is no need to worry too much about the depreciation of the RMB
Dongwu Securities believes that under the background of RMB depreciation, raising the reserve ratio for foreign exchange risks will release a signal of stabilizing the exchange rate, which will help stabilize foreign exchange market expectations. Looking back at the events of lowering the foreign exchange risk reserve ratio of forward foreign exchange sales business, the role of stabilizing the exchange rate in the short term has emerged.
On August 31, 2015, the central bank included forward foreign exchange sales into the macro-prudential management framework, and collected foreign exchange risk reserves for financial institutions that carried out forward foreign exchange sales on behalf of customers. The reserve ratio was set at 20%, which is the first time that foreign exchange risk reserves were proposed; since then, the central bank announced operations of lowering, increasing and lowering by 20 basis points in September 2017, August 2018 and October 2020 respectively. Overall, the proposal/upgrade of the reserve ratio was both in the period of RMB depreciation, and the downgrade occurred during the period of RMB appreciation; among them, within 1-2 months after the announcement of the reserve ratio was proposed/upgrade, the RMB exchange rate trend was generally stable, and then continued the previous depreciation trend; the forward foreign exchange sales contract amount fell significantly, and the forward foreign exchange sales contract amount in September 2015 decreased by 42.87% and 77.65% month-on-month to US$17.634 billion, and the forward foreign exchange sales contract amount in September 2018 decreased by 61.13% and 46.15% month-on-month to US$10.822 billion; from the perspective of spot inquiry volume, the average spot inquiry volume in September 2015 decreased by 39.22% month-on-month to US$23.245 billion, while in September 2018 both increased by 46.97% and 4.99% respectively.
future market outlook, Soyuz Securities said that in the short term, under the global liquidity tightening environment represented by Fed rate hike , the macro environment of "tight outside and loose inside" will still be maintained. According to the effect of the reserve ratio reduction in the previous two times, it is expected that the RMB exchange rate will maintain a stable trend; and in the medium and long term, as the Federal Reserve interest rate hike cycle ends, the domestic economy will grow steadily, and the macro environment of "tight outside and loose inside" will gradually adjust. The RMB exchange rate does not have the basis for medium- and long-term depreciation, so there is no need to worry too much.
In addition, China Merchants Bank believes that the 7.1-7.2 range is still an important resistance position for this round of depreciation.
China Merchants Bank said that there is no trigger for changes in the situation of weak domestic and foreign demand, differences in monetary policy between China and the United States, and strong US dollar. The triple pressure is likely to continue for a period of time, and the situation of geopolitical conflict and the impact of the epidemic also poses certain challenges, so the RMB still faces certain pressure to depreciate. However, if the market expects that the RMB exchange rate will bottom out with the new policy situation after the major meeting or subsequent economic data, and the pace of the Federal Reserve's interest rate hikes will come to an end at the end of the year or the first half of next year, with inflation falling and employment situation weakening, the RMB exchange rate will have a chance to bottom out and rebound.
China's long-term economic fundamentals are still improving, and there is no basis for continuous depreciation. In the context of a highly uncertain financial market caused by the outbreak of the epidemic in 2019, the RMB exchange rate fell to the range of 7.1-7.2, and it is expected that this range will still be an important resistance position for this round of depreciation.
This article comes from the financial world
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