quarta-feira, 6 de janeiro de 2016
Concern for China’s economy as currency sinks near 5-year low
The pace of China’s falling currency, now at its lowest level in nearly five years, has raised the prospect of renewed intervention by the central bank as Beijing seeks to control its fragile exchange rate policy.
The sharp decline in the renminbi has put investors on notice that the Chinese economy, an engine of global growth, may be slowing at a faster pace than previously forecast.
Investors around the world are worried that an unexpectedly fast depreciation will further destabilise China’s economy. Some also fear it could trigger a wave of competitive devaluations across the region.
“During our investor meetings in December, the most significant risk that investors were worried about was a substantial devaluation of the renminbi,” wrote Timothy Moe, Goldman Sachs’ chief Asia-Pacific equity strategist, in a research note on Wednesday.
Traders are selling the renminbi in the open market, and this week’s drop of 2 per cent has intensified pressure on other emerging market currencies, particularly in Asia. It has also spurred significant selling of US and European stocks.
The People’s Bank of China believes its overvalued currency is hurting its competitiveness and is trying to boost its slowing economy via a weaker currency.
The central bank set a substantially weaker trading band for the domestic currency on Wednesday but it is mindful of avoiding a repeat of the global market turmoil that was triggered in August when the renminbi weakened sharply.
China won reserve currency status in late November from the International Monetary Fund. The widening gap between the onshore and offshore rates suggests, however, that the renminbi is in fact not “freely usable”, as the IMF requires
Traders outside China are pricing in further weakness for the currency, testing the resolve of the central bank and its desire for an orderly depreciation.
Commerzbank’s EM strategist Peter Kinsella said this week’s renminbi weakness had been anything but orderly and could force the central bank to intervene. “Let’s be blunt: the central bank can intervene very aggressively if and when they choose,” he said.
Aidan Yao, Asian economist at AXA Investment Managers, said: “If wider market contagion is provoked by further FX depreciation, official intervention could resume, in our view.”
Signs of the PBoC seeking to reassert control emerged after foreign banks were suspended last month from trading foreign exchange in China.
Several of the biggest foreign banks in the renminbi market had been suspended, two people familiar with the situation said. They said this appeared to be an attempt by Beijing authorities to close the gap that has widened in recent weeks between the price of the onshore and offshore rates to a record level.
China wanted to stop banks from arbitraging the spread between the two markets for its currency, one of the people said. “This is not the way we do things in the UK, but it is understandable when you think about how China is trying to bring its currency under control,” said one of the people.
Since New Year’s day, the onshore-traded renminbi has already fallen 1 per cent, after dropping 2.6 per cent in the last two months of 2015.
It fell 0.5 per cent on Wednesday, its lowest level since March 2011, while the offshore-traded rate at one point dropped 1.1 per cent to break through Rmb6.70 to the dollar for the first time since it was created in 2010.
Analysts said the central bank was caught between its instinct to intervene in the foreign exchange market and its promise of a more flexible exchange rate policy.
It made the promise as part of its successfully campaign last year for reserve currency status from the IMF.
“They are increasing the flexibility [in the exchange rate], and trying to make it look like any other fully traded currency,” said Sacha Tihanyi, an EM strategist at investment bank TD Securities.
“But that’s an extremely difficult transition to maintain. You have a currency that is either controlled or fully floated. The transition is going to be one with a lot of friction and difficulty.”