The People’s Bank of China issued a message calling on companies to do a good job in hedging the RMB exchange rate. (Image source: Adobe stock)
[See China News on January 8, 2022](See a comprehensive report by Chinese reporter Li Zhengxin)Federal ReserveAn earlier signal to raise interest rates and shrink the balance sheet was issued on January 5, which triggered shocks in the global market and will also drive the RMBDevaluation. Same day,Bank of ChinaAlso released information, calling on companies to doRMB exchange rateHedging work.
Judging from the recent actions of the People’s Bank of China, its policy focus is on the RMB exchange rate. The continuous appreciation of the renminbi has significantly inhibited foreign trade exports, and the People’s Bank of China is guiding the market to change its appreciation expectations. In order to avoid the expansion of the appreciation of the renminbi, the People’s Bank of China previously announced that starting from December 15, 2021, it will raise the foreign exchange deposit reserve ratio of financial institutions by 2 percentage points, that is, increase the foreign exchange deposit reserve ratio from the current 7% to 9%.
Deposit reserve refers to the provision made by financial institutions to ensure the needs of customers withdrawing deposits and fund clearing, and is the deposits deposited in the central bank. Among them, including foreign exchange deposit reserves, the central bank requires deposit reserves to account for the ratio of its total deposits is the deposit reserve ratio.
The reason for raising the foreign exchange deposit reserve ratio is to lock in the scale of foreign exchange held by banks; on the other hand, it can recover the foreign exchange liquidity of the banking system, curb the expansion of foreign exchange loans, and reduce the supply of foreign currency to curb the appreciation of the renminbi.
Moreover, the latest information shows that the global central bank monetary policy and capital markets will undergo major changes.
The Federal Reserve announced the minutes of the meeting on January 5, signaling the market to raise interest rates and shrink its balance sheet. It caused violent fluctuations in the major capital markets of the United States and other countries, the stock market fell sharply, and government bond yields climbed to their highest levels in recent years.
“Reuters” quoted Carlos de Sousa, an emerging market strategist at Vontobel Asset Management in Switzerland, as saying, “People are frightened by the content of the Fed’s minutes, and the Fed may accelerate its rate tightening. ”
The minutes of the Fed meeting also showed that they were worried about inflation. It is believed that the problems of inflation and supply chain bottlenecks will continue in 2022. This is significantly different from the Fed Chairman Powell’s attitude towards inflation last year. At that time, he believed that this inflation is transitional and that inflation will fall back with the recovery of production capacity.
“Bloomberg” believes that the Fed is preparing to accelerate monetary policy tightening this time to prevent the economy from overheating. The minutes of the Fed’s meeting revealed the urgency of Fed officials, which has replaced their previous slow-moving mentality.
“Bloomberg” said that the financial market’s comments on Fed officials are characterized as “hawkish” stance. Traders believe that the probability of the Fed raising interest rates in March is 80%.
Regarding the major change in the Fed’s position, the Financial Times, a subsidiary of the People’s Bank of China, published a commentator article on January 5, pointing out that the renminbi is facing a “four difference change” this year.
The article releases a signal to the outside world about the depreciation of the renminbi. The article stated that, in particular, importing companies and borrowing foreign debt companies must establish a risk-neutral concept, effectively hedge against exchange rate risks, and beware of losses caused by exchange rate depreciation. Financial institutions must actively provide exchange rate avoidance for enterprises. Insurance services to reduce exchange rate hedging costs for small, medium and micro enterprises.
The article also stated that the global epidemic may improve, China‘s export orders may be diverted, and export growth will not be as fast as before.
Although the appreciation of the renminbi is conducive to import trade, China‘s economy relies more on export trade and earning foreign exchange. Therefore, economic circles often call the “troika” that drives the economy: export, investment, and consumption.
On January 7, according to a report by Radio Free Asia, Wu Mengdao, director of the Finance Institute of the Taiwan Economic Research Institute, pointed out in an interview that the official media’s signal should be a vaccination, which means that some unfavorable trends in the mainland’s economy this year have probably been seen. The signs and variables of the situation remind the enterprise to have a sense of risk. The current economic changes may be worse than expected, putting the yuan under relative pressure to depreciate.
Wu Mengdao said: “While the major central banks in the world, led by the United States, are raising interest rates and tightening currencies, China is still releasing its currency in the opposite direction, and it is relatively loose…Of course, China will face funds. The pressure of outflow will also cause relatively unfavorable factors such as the devaluation of the renminbi.”
In addition, many Chinese companies have a lot of foreign debt. Once the renminbi starts to depreciate and capital flows out, it will put great pressure on business operations and worry about debt solvency. Especially for real estate developers, it is very likely that a series of debt defaults will occur.
Editor in charge: Xin He Source: Look at China
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