Economy

Global investment banks rush to cut yuan forecasts

Published

1 year ago

June 14, 2023

Global investment houses have rushed to downgrade forecasts for the Chinese yuan after it weakened past the closely watched 7 per dollar level, pressured by widening yield differentials with the United States and signs that Beijing is ready to roll out more stimulus to support a bumpy post-COVID economic recovery.

The yuan has lost nearly 4% to the dollar so far this year, making it one of the worst performing Asian currencies. It last traded at 7.1643 per dollar on Wednesday.

Here is a summary of some forecasts for the Chinese currency:

Credit Agricole (OTC:CRARY) 6.95 6.70

Goldman Sachs (NYSE:GS) 7.0 (in six 6.7 months)

J.P.Morgan 7.25 6.85

Maybank 6.95 6.65

Mizuho Bank 6.9 6.7

Morgan Stanley (NYSE:MS) 7.1 6.65

RBC Capital 7.15 6.6

Markets

Societe Generale (OTC:SCGLY) 7.3 6.9

UBS 6.9-7 6.8

KEY COMMENTS:

** CREDIT AGRICOLE

“From a current account perspective, we see the dynamics as still lesssupportive than before. The renewed widening of the services deficit and also capital account outflows is driving more foreign currency demand onshore.”
“Despite the rise in the trade surplus, the foreign-related balance onshore has declined suggesting a shift away to RMB trade but also more foreign currency being withheld. In the current context though, corporates refraining from selling foreign currency does not favour CNY appreciation. While this can be positive for the CNY once CNY expectations shift, that is not playing a role at this time.

** J.P. MORGAN

“Looking ahead, CNY FX is set to remain pressured by structurally negative carry that handicaps CNY supportive flows including foreign portfolio investment (FPI) bond inflows and corporate USD selling.”
“The People’s Bank of China’s (PBOC) tolerance of currency weakness in the absence of speculative froth also opens up room for further CNY weakness, with seasonal dividend payout flows an added bearish factor over the short run.”

** RBC CAPITAL MARKETS

“The PBOC has also shown tolerance in USD/CNY’s rise through the key 7.0 level this time, which may indicate a shift towards accepting controlled currency depreciation to help support the economy. The trade-weighted CFETS Index remains well above its pandemic-driven 2020 lows, and there is both fundamental justification and room for further depreciation.”

** GOLDMAN SACHS

“We expect the goods trade surplus to narrow in the next few months from the current elevated level, though FX conversion ratio for goods trade surplus has been low in recent months at the same time as the services deficit may expand on the back of re-opening international travel.”

** UBS

“UBS’s U.S. economics team recently revised its Fed fund rate projection, now expecting 25 basis points (bps) rate cut within the year in December meeting vs. its previous expectation of a 100 bps cut within the year starting from September.”
“Thus, the yield spread might not narrow as much as we expected. Furthermore, China’s growth recovery has been weaker than expected so far. This may be dragging short term portfolio inflows.” (This story has been corrected to change Credit Agricole’s previous forecast to 6.7 from 6.75 in the table)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

9 months ago

December 26, 2023

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.

The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.

Economy

China identifies second set of projects in $140 billion spending plan

Published

9 months ago

December 25, 2023

China identifies second set of projects in $140 billion spending plan

© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo

SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.

With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.

The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.

China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.

The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.

“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.

The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.

($1 = 7.1315 renminbi)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

9 months ago

December 25, 2023

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.