CNY: Expect 17% devaluation by 2018 – Deutsche Bank

Analysts at Deutsche Bank expect RMB to depreciate to 7.4 and 8.1 against the US dollar by the end of 2017 and 2018, respectively (6.9% and 17.1% depreciation from the current level of 6.92).

Key Quotes

“It depreciated by 6.4% ytd in 2016, while the DXY index for the US dollar appreciated by 2.8%. Taking DB forecasts for other currencies, our forecast implies 2.1% and 12.1% depreciation against the PBoC basket in 2017 and 2018, respectively. The depreciation against our proprietary RMB basket would be 1.4% in 2017 and 7.5% in 2018.” 

“Our relatively bearish view on RMB is because we expect capital outflows will lead to decline of FX reserves. We expect FX reserves to fall below US$ 3trn by 2017Q1 and US$2.5trn by 2018Q3, assuming the same run pace as in Aug-Oct this year. We think the government has the ammunition to keep depreciation of RMB against the US dollar around 7% in 2017 (similar to 2016), but they will need to tolerate faster depreciation in 2018 to avoid further decline of reserves.”