martes, 16 de febrero de 2016

martes, febrero 16, 2016


China Favors Flexibility in Managing Yuan

Returning to a quasi-dollar peg has helped Beijing as the dollar weakened against the yen and the euro

By Lingling Wei in Beijing and Carolyn Cui in New York



The central bank is keeping its options open, swinging between its pledge to attach the yuan’s value to the currencies of its major trading partners and, when that works against it, repegging it to the dollar.

Since mid-January, the People’s Bank of China has quietly rehitched the yuan’s value to a weakening dollar, despite vowing just a month earlier to use multiple currencies as the yuan’s reference points.

For investors, China’s opportunistic approach sows confusion, which has led to volatile trading.

On Monday, the central bank suddenly guided the yuan sharply higher.
 
Chinese officials and advisers close to the central bank said the move was aimed at shoring up dwindling confidence in the Chinese currency, also known as the renminbi, that has led businesses and individuals to rush to move capital out of the country. Analysts estimate China’s capital outflows ranged between $500 billion and $1 trillion last year.

“The central bank wants to be flexible,” one of the officials said. “The goal is to reference the renminbi, instead of strictly pegging it, to the basket.”

In published remarks over the weekend, China’s central-bank governor, Zhou Xiaochuan, gave a hint of Beijing’s desire to be opportunistic in remaking its exchange-rate regime. Speaking to Caixin, a prominent Chinese magazine, Mr. Zhou said China would proceed with the reform of referencing the yuan to the currency basket when there is “a window” of opportunity and will be “pragmatic and patient” when there is not.

“The direction is clear, but the path to reform won’t be a straight line,” Mr. Zhou said.

Returning to what some analysts call a quasi-dollar peg has helped Beijing at a time when the dollar has weakened sharply against the yen and the euro as expectations for interest-rate increases in the U.S. fade.

That has allowed the yuan to ride down with the dollar and discreetly depreciate against the currencies of China’s trading partners.



“Things right now are working in the central bank’s favor,” said David Loevinger, a managing director and emerging-market sovereign analyst at TCW Group, with $180.7 billion of assets under management. “For the moment, that’s taken a lot of the pressure from the Chinese yuan.

There’s less need for them to have the yuan depreciate against the dollar.”

But it isn’t clear how long the favorable winds will blow for China. Monday’s currency movements gave an indication of the complexity of China’s gambit.

The yuan strengthened by as much as 1.35% against the dollar in mainland trading on Monday as the central bank guided the currency sharply stronger on the first day of trading following a weeklong Lunar New Year holiday.

Prior to Monday’s surge, which brought the yuan to 6.4938 per dollar in late mainland trading, the yuan had been hovering around 6.57 per dollar.

The central bank engineered the jump to maintain the yuan’s relative stability against other currencies after some of them strengthened against the dollar last week. “It’s a catch-up with movements in the dollar after the holiday,” said Jerry Peng, an analyst at Macquarie Securities.

“But in the near term, the [yuan-dollar] pegging pattern will still hold because stemming outflows remains the central bank’s top priority.”

Monday’s jump erased most of the losses the yuan had sustained in early January, when the central bank unexpectedly weakened the currency amid an economic slowdown. The yuan is down a slight 0.3% against the dollar since the end of last year. By comparison, the yuan has weakened 1.7% against a basket of 13 currencies, the composition of which the central bank disclosed in December, including the dollar, the yen, the euro and the Australian dollar.

Should the dollar resume its surge, Beijing would need to adjust its strategy again because a yuan more closely pegged to a rising dollar would hurt the Chinese central bank’s ability to ease credit, a crucial tool in rekindling economic growth. That is because the central bank, to maintain the peg, would have to intervene more heavily in currency markets, which would have the effect of draining yuan funds out of China’s financial system.

“They have enough firepower to play this game for a long time, but not forever,” Mr. Loevinger said.

The central-bank officials and advisers stress that referencing the yuan against a basket of currencies remains the central bank’s long-term goal. The central bank is expected to revert to the basket approach, they say, as the amount of money leaving the country eases and in the event of renewed strength of the dollar, which has weakened against some major currencies in recent weeks.

In the long run, the officials and advisers say, the Chinese central bank wants to build something thought of as the Singapore model. Under the “basket, band and crawl” system, the Monetary Authority of Singapore manages the Singaporean dollar’s value against a trade-weighted currency basket, allows it to trade within a band and lets the band crawl upward or downward as the central bank sees fit.

With that kind of model in place, the people say, China’s central bank would give a general guidance of future movement of the country’s currency and reduce its intervention in the market.

The state of the Chinese economy—which decelerated to a growth rate of 6.9% last year, the slowest pace in a quarter century—and whether the yuan will sharply depreciate have become a worry for global investors, who have counted on China as a source of growth for more than a decade.

That anxiety has been noticed by Beijing. Senior Chinese officials have pledged to better communicate with the market, though officials at the central bank have also signaled that, when it comes to fighting off speculators, it sometimes helps to be unpredictable.

China’s central bank has been criticized for how it has managed and communicated its exchange-rate policies over the past eight months in a series of surprises and reversals. As it devalued the yuan in August, the central bank tried a new way to fix the yuan’s value each day, only to all but drop it when confused investors sold off the currency.

For global investors, a big depreciation of China’s yuan remains one of the biggest risks this year, as cheaper Chinese exports could drag down asset prices in the rest of the world.

“Coming off a peg is always an extremely delicate thing,” said James Barrineau, co-head of emerging-market debt at Schroders Investment Management, SDR 1.68 % which has $446.5 billion of assets under management. “They really need to communicate [their] broad strategy to have that accepted by the markets.”

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