Special Report: PBoC Fixing Policy

  • The renminbi depreciation was the natural result of the significant shift in PBoC policy to adjust the renminbi fixing in line with the previous close effectively freeing the currency to market forces yet retaining its ability to avoid shocks from when markets are “distorted”.
  • August 13 PBoC statement strongly confirms that the underlying rationale is not to promote exports but for meeting internationalisation requirements and aspirations to be included in the IMF’s SDR this year. (link: PBoC Statement 13 August 2015)
  • The renminbi is already at a comfortable level for the PBoC and a long term path of appreciation is still expected.
  • Longer term comparison of China with the industrialisation of Japan points to the potential scale of further renminbi appreciation over the coming decades even as growth slows.
  • The move has had a strong positive impact on the bond market, especially in higher grade credit and puts further strain on inflation and growth in the west which is broadly negative for stocks and positive for bonds.

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