10 Jul 2013
Flash: RMB and growth stability - BAML
FXstreet.com (London) - Alexandra Fletcher, BofA Merrill Lynch Global Research offers opinions around China’s position and subsequent exchange rate implications.
First, she said, trade data in January-April are confirmed to be inflated. Second, the RMB/USD appreciation in January-April was misguided by the inflated trade data. With the poor export growth in May and June, she expects RMB/USD to stop appreciating and may even depreciate a bit (though significant depreciation in fixing is unlikely as the new government is still concerned about capital flight and political backlash in the US). Third, she said, “though we don't expect any big stimulus plans, the State Council will try to avoid unnecessary disruptions such as the interbank squeeze in June, and the government may do something on the margin such as speeding up fiscal spending to stabilize growth.” She also notes Premier Li said in a meeting on 9 July that he will not allow growth to slide to below his target.
First, she said, trade data in January-April are confirmed to be inflated. Second, the RMB/USD appreciation in January-April was misguided by the inflated trade data. With the poor export growth in May and June, she expects RMB/USD to stop appreciating and may even depreciate a bit (though significant depreciation in fixing is unlikely as the new government is still concerned about capital flight and political backlash in the US). Third, she said, “though we don't expect any big stimulus plans, the State Council will try to avoid unnecessary disruptions such as the interbank squeeze in June, and the government may do something on the margin such as speeding up fiscal spending to stabilize growth.” She also notes Premier Li said in a meeting on 9 July that he will not allow growth to slide to below his target.