The week in renminbi: PBoC won’t fight trade war with currency moves, CBIRC ramps up support for the real economy, ex-central bank head calls for ‘low key’ RMBi
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The week in renminbi: PBoC won’t fight trade war with currency moves, CBIRC ramps up support for the real economy, ex-central bank head calls for ‘low key’ RMBi

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The People’s Bank of China says it will not weaken the RMB amid rising trade tensions with the US, the banking and insurance regulator wants more lending to small businesses, and the former boss of the Chinese central bank argues that RMB internationalization should keep a low profile.

  • The PBoC has vowed not to tinker with the renminbi to help China win the trade war. The pledge came in its latest quarterly monetary policy report, which was published on Friday evening.

    “The RMB exchange is mostly determined by supply and demand in the markets [and] the central bank will not use the RMB exchange rate as a tool to face off external disruptions, such as trade frictions,” said the PBoC. “The central bank has basically exited from regular intervention in the exchange rate, which is demonstrated by changes in FX reserves and the central bank’s funds outstanding for foreign exchange.”

    The PBoC also sought to reassure market participants that they have nothing to fear from a weakening RMB, pointing out that most currencies are down against a strong dollar.

    The daily fixing of the onshore RMB gained 3.9% against the dollar in the first quarter, but softened by 5% in the second quarter, which means it lost 1.2% against the dollar in the first half, according to the central bank’s figures. The Australian dollar and Korean won both weakened against the dollar in the first half, down by 5.2% and 3.9%, respectively, said the PBoC.

  • Banks and insurance companies are gearing up to finance the real economy, the China Banking and Insurance Regulatory Commission (CBIRC) said in an August 11 statement.

    The regulator claimed that it has successfully guided these institutions to lend more to the real economy, noting that there were Rmb1.45tr ($211.3bn) of new loans in July, up Rmb623.7bn year-on-year, and lending for infrastructure projects stood at Rmb172.4bn in July, up from Rmb46.9bn in June .

    Th e CBIRC said it will ask banks to increase their lending to the real economy, especially for smaller businesses, accelerate the debt to equity swap programme, and allow small and micro-sized enterprises to increase their tolerance of non-performing loans .

    Th e statement shows the CBIRC is willing to go for a more dovish stance in regulating lending should the economy need extra cash, Song Yu, chief China economist at Beijing Gao Hua Securities, wrote in an August 12 memo.

    “If [economic] activity data do show some weakness, as we and market consensus forecast in July, there will be pressure to loosen even more, which might be the reason for [the CBIRC’s] statement,” said Song.  “The statement shows the government is treating regulatory restrictions in a very flexible fashion and further actions to relax these restrictions should not come as a surprise.”

    The CBIRC also claimed victory over the growth of NPL in the banking sector, saying that banks have disposed of Rmb800bn of NPLs, up by Rmb166.5bn from this point last year.

  • China should promote RMB internationalization in a low profile manner, Zhou Xiaochuan, former governor of the PBoC, was quoted by local media as saying on August 11. He argued that the progress of RMB internationalisation will ultimately be decided by market participants, not by China alone.

    Zhou also argued that RMB internationalisation has moved faster than expected in recent years because most developed westerns countries were recovering from the financial crisis, implying that a slowdown in RMB internationalization may be just around the corner.

    “RMB internationalization does not move forward in a straight line,” he said. “It will move a bit faster when there are opportunities to do so, and a bit slower at other times.”

  • The trade war has not tamed foreign investors’ enthusiasm for A-shares, Gao Li, a spokesperson at the China Securities Regulatory Commission, told reporters on August 10. She said net foreign investment in A-shares amounted to Rmb161.6bn between January and July, and that even as trade tensions have heated up since June, the asset class still recorded a net Rmb49.8bn of inflows in June and July.

  • Standard Chartered revised its forecast for the RMB exchange rate this morning. Analysts at the bank said the onshore renminbi (CNY) will trade at 6.92 against the dollar by the end of 2018, weaker than their previous forecast of 6.58. StanChart also projected that the CNY will hit 7.0 in the first half of next year.

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