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Analysis|China-US interest rate inversion, RMB exchange rate and cross-border capital flow pressure
The Paper reporter Chen Yueshi
As the 10-year Treasury bond spread between China and the United States “inverted” for the first time since 2010 on April 11, the market is paying particular attention to whether it will lead to the depreciation of the RMB, capital outflows, and even constraints on monetary policy.
The RMB may face some depreciation pressure but the impact is limited
CICCIt is believed that the inversion of the interest rate gap between China and the United States may not cause a sharp depreciation of the RMB.
The agency believes that on the one hand, the actual interest rate gap between China and the United States is still positive, so even if the nominal interest rate gap between China and the United States is getting smaller or even inverted in the first quarter, the overall appreciation of the RMB against the U.S. dollar. Second, for a country like China, which is currently more dependent on external demand and whose financial market is still under construction, the impact of the current account is often higher than that of the financial account. Although my country’s trade surplus may fall from a high level during the year, even if it falls, the absolute value may still be at a historically high level. Even if there will be capital outflows under the financial account in the future, the total amount may hardly exceed that under the current account. capital inflow.
Haitong SecuritiesIt is believed that the current round of Sino-US interest rate inversion is similar to that in 2018, and is essentially caused by the deviation of economic trends. Therefore, the direct impact of the inversion is that the RMB exchange rate will gradually face depreciation pressure. However, judging from the recent trend, the performance of the RMB exchange rate is still strong, which may be related to two factors. One is the real interest rate. The nominal interest rate in the United States is high, but inflation expectations are also high, so the real interest rate is still low, and the real interest rate difference between China and the United States can provide a certain buffer.
CITIC SecuritiesIt is pointed out that the inversion of the Sino-US interest rate differential has a limited impact on the RMB. At this stage, the current account and direct investment projects still have a large surplus, and the domestic dollar liquidity is sufficient. Foreign investment in securities is not the dominant factor in RMB supply and demand, and the scale of foreign debt repayment by companies, delayed foreign exchange settlement by foreign trade companies, and informal capital outflows can still be controlled. Therefore, from the perspective of the balance of payments, the impact of the narrowing of the interest rate gap between China and the United States on the RMB may be relatively limited. However, from the perspective of market sentiment, the inversion of the Sino-US interest rate differential may put pressure on the RMB in the short term. It is expected that the flexibility of the RMB will further increase, but the probability of sustained unilateral depreciation is unlikely.
Cinda Securities believes that in the future, the RMB may face certain depreciation pressure. First, the support of exports to the RMB exchange rate may be weakened; second, the fundamentals of China and the United States and the monetary policy cycle are dislocated, and the RMB exchange rate may be under pressure. Third, cross-border capital flows may also affect exchange rate performance. However, in the medium and long term, the RMB does not have the basis for a sharp depreciation.
“There is pressure of short-term capital outflow. The market’s expectations for the Fed to speed up the pace of interest rate hikes and shrink its balance sheet are increasing. The market is bullish on the US dollar, and the renminbi is indeed under pressure. However, there is still a lot of demand for foreign exchange settlement in the market.” A state-owned bank financial Marketing sources said.
Monetary policy space remains
Haitong Securities pointed out that the narrowing of the interest rate gap between China and the United States will not affect my country’s monetary policy, and the central bank can indeed “take me as the mainstay”. On the one hand, the current RMB exchange rate is at a very strong level, and a certain degree of depreciation is acceptable; on the other hand, capital management is more strictly regulated, which also guarantees the independence of domestic monetary policy. So it’s not that we don’t cut rates because the Fed is going to raise rates, but because rate cuts themselves may not be the focus of monetary policy this year.
“If the inversion of the Sino-US interest rate spread continues to intensify, it will naturally constrain my country’s monetary policy. However, there is still a certain buffer space for the current Sino-US real interest rate spread, and China’s exports and foreign direct investment are still relatively prosperous, which greatly eases monetary policy. External pressure. In the short term, my country’s monetary policy will still adhere to ‘me-based’, hedge the downward pressure on the economy, and there is still room for RRR cuts and interest rate cuts.” Yuekai Securities pointed out.
GF SecuritiesIt is believed that in the context of the additional impact of the epidemic on the economy, the policy of “going out early and going out quickly” is reasonable.
“Currently exports are strong and real interest spreads are wide, and there is still room for corresponding monetary policy, which is basically not affected by the direction of global monetary policy; if exports slow down and real interest spreads peak and fall in the future, the bilateral fluctuation characteristics of the exchange rate will be even greater. Strong, monetary policy needs to take into account internal and external balance to a greater extent.” The agency pointed out.
Everbright believes that it is still in the initial stage of easing credit. To reverse the sluggish financing needs of the real economy, monetary policy needs to continue to guide the actual loan interest rate downward, but the constraints of internal and external balance have also become increasingly apparent. Looking back, during the period of increasing internal and external balance pressure, the central bank basically never used policy interest rate tools, and more used quantitative tools to hedge the downward pressure on the economy, superimposing the consideration of the pace of monetary tightening by the Fed. Desirable window period for the implementation of relaxed operations.
Note: This article has been modified
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