Reducing the exchange rate of the yuan, the people’s Bank of China may force the fed to postpone the rate hike, experts believe. They note that the Chinese Central Bank’s decision on the depreciation of the yuan will not have a noticeable effect on the Russian economy.
MOSCOW, Dec 14. The Chinese Central Bank’s decision on the depreciation of the yuan against the dollar testifies to the desire of the authorities to support exporters in anticipation of the decision by the fed rate, it will have no noticeable effect on the Russian economy, experts believe, of respondents.
The people’s Bank of China on Monday lowered its yuan exchange rate against the dollar to 6,4495 yuan per dollar. Thus, the Chinese currency weakened by 0.2% to the lowest level since July 2011. The weakening of the yuan began in the summer of 2014, the sharpest fall occurred in August 2015 — the yuan within three days fell by 4.6%.
The people’s Bank of China on 11 December presented information about the new basket of currencies against which installed the yuan, whereas previously the calculation of rate was used only dollar. It will include 13 currencies, the share of which will be determined depending on the volume of trade with China. In addition to the dollar, it will include the Euro, yen, Singaporean and Hong Kong dollar, Thai baht.
While the regulator did not say when exactly he will move to a new system of calculation. Analysts noted that this move will weaken the exchange rate of the yuan against the dollar, and also could face a new currency war.
The yuan against the dollar
Analyst Nordea Bank Dmitry Savchenko believes that the question of the massive devaluation of the Renminbi currently is not. “First, the yuan higher against the dollar very moderate rate, and it’s not a big surprise for the market. Surprise can be called only momentum last week when weakening slightly ahead of expectations,” he said.
“Secondly, if you look at the dynamics of the yuan against a broad basket of currencies of countries-trading partners of China, it appears that the yuan is even added. If you speak against the dollar, it is likely that the smooth slide of the yuan will continue, as at current rates the yuan looks fundamentally slightly overvalued,” he says.
Analyst, MidLincoln Research Hovhannes Hovhannisyan believes that reducing the rate of yuan, the people’s Bank of China may force the fed to delay raising rates. It is expected by some analysts, could happen as early as this week.
“This week there will be a meeting of the U.S. Federal reserve, and possibly the Chinese monetary authorities by weakening the yuan force the fed to postpone the rate increase because the weak yuan is an advantage for Chinese exports to the US and further rate hike in the US will lead to even more weakening of the yuan against the dollar,” he said.
According to him, the Chinese Central Bank wants to reduce the pressure on the Chinese currency as a possible rate hike in the US and in advance reduces the rate of the yuan. “And finally, in addition to the above, China just stimulates their exports,” stressed Hovhannisyan in an interview with Sputnik.
On export support and says the analyst of Raiffeisenbank Denis Poryvai: “the Actions of the Central Bank of China are primarily associated with supporting the economy. The weakening of the national currency increases the competitiveness of industrial products, it maintains export”.
Director of the Russian APEC study center, Ranepa by Natalia Stapran does not consider what is happening. “This is a natural reaction of the Chinese leadership, as they quite manual control of all financial mechanisms,” she says.
“I think that it is difficult to predict something in the future. But, in my opinion, until there is no sign of positive change. I think the devaluation could last a while, because that’s the way they are trying to straighten out the skewed financial system that has emerged,” — said the expert.
At this Savchenko from Nordea Bank believes that in the long term the yuan will strengthen. “The inclusion of the yuan in the basket (SDR, the IMF – ed.) is a positive for the currency on a long horizon. While in the moment this solution does not increase the demand for the yuan, due to the lack of liquidity of the market of Chinese assets,” he said.
The IMF Executive Board on 30 November decided from October 1, 2016 to include the yuan in the SDR basket, including dollar, Euro, pound sterling and yen. The Fund’s decision coincided with the expectations of international analysts and experts who have long talked about the need for recognition of the role of China in global trade.
Russia won’t feel it
Natalia Stapran believes that the devaluation of the Renminbi do not directly affect exchange trading in Russia. “In my opinion, a direct influence should not be, because still we are more tied to the dollar than the yuan. While the yuan is not ranked in the global currency basket,” said she.
“It is clear that in its new status (in SDR basket – ed.) the yuan will undergo certain fluctuations,” she adds. The inclusion of the yuan in the basket shall enter into force on 1 October 2016.
Agree with her Savchenko from Nordea Bank. “As for the impact on the economy of the Russian Federation, it is direct noticeable effect of these steps, the Chinese regulator will not have. However, the weakening of the Chinese currency in the future can spur an export component that, in turn, will support the cost of commodities,” he said.