November 2, 2015
China lifts renminbi fix by most in a decade
The renminbi is the official currency of the People's Republic of China, and translates to “people's money.” Its international symbol is CNY (or CNH in Hong Kong; but abbreviated RMB
China’s currency weakened against the dollar on Monday despite the sharpest rise in the daily renminbi fix in a decade.
The People’s Bank of China bolstered the midpoint of the range within which the currency is permitted to trade by 0.54 per cent — the most the fix has been reinforced since 2005, when the renminbi was unpegged from the US dollar.
Beijing, CHINA: A woman walks pass the Chinese renminbi 100 yuan note display at a museum in Beijing 01 March 2007.©AFP
In doing so, it made good on an August pledge that it would allow the daily midpoint to follow market movements, rather than use it to signal the direction of trade as had been its previous practice.
The currency strengthened by the most in 10 years on Friday, rising 0.62 per cent to 6.3175 against the dollar.
By Monday afternoon it had weakened to 6.3420, down 0.4 per cent. The move seemed to confirm traders’ suspicions that Friday’s strong performance was a one-day anomaly rather than a fundamental improvement in the outlook for the currency.
Friday’s strength came as China’s ruling Communist party concluded a meeting designed to set economic direction for the next five years and to reassign senior officials ahead of the next leadership term.
It also coincided with the last trading day of the month, leading some traders to believe the PBoC may have stepped up intervention to help banks avoid mark-to-market losses on short dollar positions. Banks typically file financial reports to regulators and internally at the end of a month.
China is hoping that a November vote at the International Monetary Fund will result in the renminbi’s inclusion in an elite basket of reserve currencies used to value the IMF’s de facto currency, the Special Drawing Rights. Allowing the market more sway over currency moves would help Beijing’s case.
It is “in China’s interest to see more volatility and uncertainty in the market”, said Zhou Hao, of Commerzbank in Singapore. “As the SDR decision approaches, the central bank will tolerate a bigger swing but won’t lose control over the market.”'
The announcement last Friday of new rules making it easier for foreigners to invest in Chinese capital markets and further liberalisation within Shanghai’s Free Trade Zone may have played a role in the one-day strengthening in the renminbi, said Julian Evans-Pritchard of Capital Economics in Singapore.
Even so, fears that Chinese capital outflows would pressure the renminbi to weaken further are less acute. “A lot of those concerns have eased,” Mr Evans-Pritchard said. “At least over the medium term the renminbi is set to appreciate.”