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Market watch: Yuan - dramatic depreciation unlikely (2)

(People's Daily Online)    07:41, February 13, 2014
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In addition, a research report by FTI has confirmed that relatively independent economies like China and Russia have not been seriously affected by the US Fed Reserve’s monetary policy adjustments.

All relevant indicators suggest that China has the capacity to handle the aftershock from the QE withdrawal, and that the yuan exchange rate is unlikely to drop significantly.

In fact, according to Guan Tao, head of the Balance of Payments Department of China’s State Administration of Foreign Exchange, “The tapering of QE hasn’t fundamentally affected cross-border capital flows in China.”

“Overall, China’s economy is still growing on a solid and relatively rapid basis. The fundamentals of the economy, fiscal, and financial situations, as well as income and expenditure on the foreign exchange account and the currency account will all remain steady. Gains from reform will make themselves apparent progressively, and we also have ample foreign exchange reserves,” Guan explained.
  
The yuan breaks through the USD 6 barrier - highly probable this year

As for the trend of the yuan exchange rate this year, the general view of the market is that it will continue to rise in 2014, but in a narrower range and at a slower pace compared with 2013. In addition, two-way fluctuations will become more normal.

Chief economist of CITIC Securities Zhu Jianfang predicts that the range for appreciation of the yuan will be within 1 to 2 percent this year. In addition, with further advances in exchange rate marketization, the range of fluctuation for the yuan’s value against the US dollar is likely to broaden.

“China will continue to enjoy trade and investment surpluses in 2014, and if cross-border capital flows two ways, it is likely to become a normality that the exchange rate will fluctuate two ways too,” said Guan.

E Yongjian, senior researcher with the financial research center of China’s Bank of Communications, believes that China will remain attractive to foreign capital with its steadily growing economy. “As a result, there is a high probability that the yuan/USD exchange rate will break through the barrier of 6 in 2014,” E predicted.

Edited and translated from《人民币不会出现大幅贬值》, source: People’s Daily Overseas Edition, author: Luo Lan.

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(Editor:DuMingming、Yao Chun)

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