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9 Feb 2015
PBoC favouring fiscal action over monetary policy – Nomura
FXStreet (Barcelona) - Research Analysts at Nomura, explain that the PBoC favours taking fiscal policy actions rather than changing monetary policy, and see little risks of any FX policy intervention in the near term.
Key Quotes
“Currently, we see few signs that China will change its FX policy in the near term to either depreciate the currency via higher USD/CNY fixes and/or widen the daily USD/CNY trading band (currently +/-2%).”
“On the USD/CNY fix, although the fix errors (the actual versus Nomura’s model projection) have become more volatile (e.g., errors of +54pips on 23 January and -50 pips on 6 February), the direction of these errors remains mixed, and there have been no signs of a shift to deliberate RMB depreciation. Indeed, the cumulative fix error over the past five sessions to 6 February is +12pips, while year-to-date, the cumulative error is slightly negative at -24pips.”
“Regarding FX rhetoric, views remain mixed and, to our knowledge, the People’s Bank of China (PBoC) has not publicly commented on a potential band widening (as it has preceding previous band widening).”
“The most recent public statement was reported in the People’s Daily news (5 February 2015), which reported that Liu Yuanchun (Head of National Development and Strategy Research institute at Renmin University) called for a band widening to offset imported deflation. However, another article from the Securities Daily (31 January 2015), highlighted that Liu also saw potential negative effects from RMB depreciation, including capital flight risks and the negative economic implications.”
“An article in the Financial News (5 February), which is published by the PBoC but does not cite a PBoC official, highlighted that China growth requires more proactive fiscal policy and prudent monetary policy.”
“This suggests the PBoC favours taking fiscal action over making significant changes to monetary policy.”
Key Quotes
“Currently, we see few signs that China will change its FX policy in the near term to either depreciate the currency via higher USD/CNY fixes and/or widen the daily USD/CNY trading band (currently +/-2%).”
“On the USD/CNY fix, although the fix errors (the actual versus Nomura’s model projection) have become more volatile (e.g., errors of +54pips on 23 January and -50 pips on 6 February), the direction of these errors remains mixed, and there have been no signs of a shift to deliberate RMB depreciation. Indeed, the cumulative fix error over the past five sessions to 6 February is +12pips, while year-to-date, the cumulative error is slightly negative at -24pips.”
“Regarding FX rhetoric, views remain mixed and, to our knowledge, the People’s Bank of China (PBoC) has not publicly commented on a potential band widening (as it has preceding previous band widening).”
“The most recent public statement was reported in the People’s Daily news (5 February 2015), which reported that Liu Yuanchun (Head of National Development and Strategy Research institute at Renmin University) called for a band widening to offset imported deflation. However, another article from the Securities Daily (31 January 2015), highlighted that Liu also saw potential negative effects from RMB depreciation, including capital flight risks and the negative economic implications.”
“An article in the Financial News (5 February), which is published by the PBoC but does not cite a PBoC official, highlighted that China growth requires more proactive fiscal policy and prudent monetary policy.”
“This suggests the PBoC favours taking fiscal action over making significant changes to monetary policy.”