Hu Weijun, chief Chinese economist at Macquarie Group, said China's central bank had no choice but to tighten capital controls to limit capital outflows as the renminbi would face greater pressure to depreciate after it was lowered.
Photo: January 2016, US dollar and Chinese currency notes. REUTERS/Jason Lee
He pointed out in the report that the downgrade may boost market sentiment in the short term, but referring to the first two, the targeted downgrade is not enough to reverse the economic trend, and that SHIBOR's decline since June means that the bigger problem is not how much money banks have, but how much they are willing to lend to the real economy. That is to say, the RR may still help local governments sell more local debt to banks.
Therefore, Hu Weijun predicted that infrastructure investment and social financing growth will probably rebound in the four quarter.
With regard to the RMB exchange rate, he pointed out that the fundamental problem was the deviation of monetary policy between China and the United States, the narrowing of the 10-year Treasury bond yield spread from 150 basis points to 40 basis points, and the strengthening of the US dollar also put pressure on the RMB exchange rate. The latest data showed that China's foreign reserves fell by 22.69 billion US dollars in September, the largest decline since February.

<>RMB will face more devaluation pressure after it is lowered in China.

 

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