China will allow further CNY weakness - Commerzbank

Analyst, Hao Zhou at Commerzbank, suggests that as China rebalances a weak currency is a vital component of ensuring robust external demand.

Key Quotes

“With CNY weakening, China actually increased its market share in the global export market over the past two years. It’s not all good news though. The risk of a weaker currency is that we could see further capital outflows from China, especially as the USD appreciates. To hedge this risk, China’s capital control measures will not be loosened any time soon.”

“In the meantime, China needs to intervene into the market in order to steer a “managed depreciation”. This managed FX regime is unsustainable as China’s FX reserves are not infinite. We don’t expect significant inflation increases China as China’s FX depreciation is likely to be modest.”