7 Jul 2015
CNY expected to depreciate further – BAML
FXStreet (Edinburgh) - Analysts at BAML see the CNY losing further ground in the medium term.
Key Quotes
“In our view, lower Chinese rates are likely to lead to increased capital outflows (especially as CNY internationalization would require greater capital account liberalization) which in turn will place downward pressure on the CNY”.
“China can intervene directly in the FX market to support the CNY, but the negative impact of such interventions on domestic liquidity could offset monetary easing”.
“At the start of the year when capital outflows picked up, FX interventions pushed up the 7-day repo rate to 5% at one point”.
“This is why our central scenario is for 5-10% depreciation of the CNY against the USD over a one-year horizon”.
“That said, we see the probability of a band widening ahead of the IMF board meeting in the fall as very low”.
“Eventually, we do expect more liberalization of the fixing mechanism to allow the CNY fix to better reflect market supply and demand and alleviate the gap between the fix and spot within the current +/-2% band”.
Key Quotes
“In our view, lower Chinese rates are likely to lead to increased capital outflows (especially as CNY internationalization would require greater capital account liberalization) which in turn will place downward pressure on the CNY”.
“China can intervene directly in the FX market to support the CNY, but the negative impact of such interventions on domestic liquidity could offset monetary easing”.
“At the start of the year when capital outflows picked up, FX interventions pushed up the 7-day repo rate to 5% at one point”.
“This is why our central scenario is for 5-10% depreciation of the CNY against the USD over a one-year horizon”.
“That said, we see the probability of a band widening ahead of the IMF board meeting in the fall as very low”.
“Eventually, we do expect more liberalization of the fixing mechanism to allow the CNY fix to better reflect market supply and demand and alleviate the gap between the fix and spot within the current +/-2% band”.