Renminbi depreciation not because of China economy weakness: report

Amid renminbi’s biggest ever weekly depreciation.

It has been noted that the renminbi posted its biggest ever weekly depreciation of 1.5% during the week that ended 8 Jan.

According to a research note from CCB International, however, it disagrees with those who suggest this has something to do with weakness in China’s economy.

It also disagrees with the suggestion that the PBoC has depleted its last resort for stabilizing the currency.

Here’s more from CCB International:

We do not think the current rate of depreciation will last. In our view, the PBoC is trying to avoid another one-off depreciation in the renminbi and is instead permitting the currency to depreciate at a fast pace to ease downward pressure.

In Dec, China’s FX reserves fell US$108b, the biggest decline on record. We believe the timing for an RRR cut is drawing near as liquidity lost due to capital outflows needs to be replenished. We look for an RRR cut of 50bp ahead of the Chinese New Year holidays that begin on 7 Feb.