Experts sure RMB will likely stay in stable band

Although USD/CNY has breached the psychological level of 7 to touch a two-year low, there is little room for the Chinese currency to decline continuously or to fall drastically, experts said on Friday.

For the first time since August 2020, the offshore renminbi exchange rate against the US dollar dropped to breach a key threshold of 7 on Thursday. The onshore RMB exchange rate against the greenback also fell below 7 on Friday.

The People's Bank of China said on Friday that short-term pressure for the RMB's depreciation has all been released so far. RMB has demonstrated both appreciation and depreciation this year, showing stronger elasticity.

Wen Bin, chief economist at China Minsheng Banking Corp, attributed the RMB's latest depreciation to the stronger US dollar at a time of monetary tightening by the inflation-targeting US Federal Reserve.

Over the past few months, all the major developed economies' currencies, including the sterling, the euro and the Japanese yen, have depreciated against the US dollar as well. The extent of RMB's depreciation has been smaller, with the RMB exchange rate generally stable, said Wen.

Liu Guoqiang, deputy governor of the PBOC, told a news conference on Sept 5 the two-way fluctuation of the RMB is normal. The RMB exchange rate will remain at a reasonably stable level, supported by China's strong economic performance. The central regulators will not allow any sharp decline of the currency, he said.

The currency market in China is operating normally at present, with cross-border capital still in order. Although there is a spillover effect from the Fed's monetary policy adjustments, it is generally controllable. The long-term forecast for the RMB is that the Chinese currency will stay buoyant as the world will increasingly recognize the value of using the RMB in various transactions, said Liu.

Guan Tao, chief economist of BOC International, agreed, saying China's strong economic fundamentals will serve as a solid pillar of support for the RMB, keeping the currency at a stable level.

The Chinese domestic market size, he said, is humongous and the country has a full range of industry categories. The resilience of China's industrial chain in the global context has been quite noticeable, especially during the COVID-19 pandemic. China's exports have beaten market expectations by reporting continued expansion.

Data released by the National Bureau of Statistics on Friday showed the total value of China's exports surged nearly 12 percent year-on-year to 2.1 trillion yuan ($299.6 billion) in August, with the trade surplus approaching 536 billion yuan, up from 363.2 billion yuan in August 2021.

Wang Tao, head of Asia economics at UBS Investment Bank, had told a news conference on Aug 31 the odds for USD/CNY to drop below 7 cannot be ruled out. But the exchange rate, she said, will return to 6.9 by the year-end.