6 Mar 2014
Flash: Motivations behind PBOC to depreciate CNY - JPMorgan
FXStreet (Bali) - JPMorgan looks at what are the PBOC’s possible motivations for weakening the fixing.
Key Quotes
"Last year’s large inflows and reserve accumulation are probably the main reason for PBOC to re emphasize two-way risk in currency. Especially after demonstrating resilience of the CNH trade against the sharp summer EM selloff, inflows have intensified since the turn of the year."
"The PBoC likely wanted to both reduce the current speculative positioning, and discourage the scale of future long RMB speculation. The growth drag from deleveraging and potential corporate financial stress makes persistent REER appreciation less palatable."
"Last month we recommended taking profit on the CNH appreciation trade, partly because we expect the corporate sector will continue to de-lever and this may lead to bankruptcies onshore."
"Against a backdrop of 7%-handle GDP growth, authorities may want to play it safe and appreciate less in 2014 than last year when the outlook was brighter. This is especially relevant now, given how RMB’s REER has outperformed in the past year, amid significant depreciations elsewhere in EM. This puts additional pressure on exports.
Key Quotes
"Last year’s large inflows and reserve accumulation are probably the main reason for PBOC to re emphasize two-way risk in currency. Especially after demonstrating resilience of the CNH trade against the sharp summer EM selloff, inflows have intensified since the turn of the year."
"The PBoC likely wanted to both reduce the current speculative positioning, and discourage the scale of future long RMB speculation. The growth drag from deleveraging and potential corporate financial stress makes persistent REER appreciation less palatable."
"Last month we recommended taking profit on the CNH appreciation trade, partly because we expect the corporate sector will continue to de-lever and this may lead to bankruptcies onshore."
"Against a backdrop of 7%-handle GDP growth, authorities may want to play it safe and appreciate less in 2014 than last year when the outlook was brighter. This is especially relevant now, given how RMB’s REER has outperformed in the past year, amid significant depreciations elsewhere in EM. This puts additional pressure on exports.