RMB depreciation is near its end: PBoC Deputy Governor Yi

If we go by PBoC hints, though.

PBoC Deputy Governor Yi Gang recently hosted a press meet commenting on the central bank's latest action in the FX market.

According to a research note from Credit Suisse, Yi said that the Chinese foreign exchange regime has now become more market-oriented and it is good for the exchange rate's long-term stability.

He said the adjustment in the RMB exchange rate has basically completed. He also said the goal of the PBoC in the latest action is to allow the market to determine the RMB exchange rate level.

The PBoC claims that it is no longer intervening frequently in the FX market, suggesting that the CNY is no longer a de-facto peg against the USD. The PBoC explicitly said that the current level of the RMB is in line with economic fundamentals.

Credit Suisse thinks the PBoC has done a good job in executing its plan of transiting to a new exchange rate regime for the RMB. The central bank has seized the opportunity that the IMF and the US demanded for the revamp of its fixed exchange rate mechanism.

Here's more from Credit Suisse:

PBoC's Yi: The adjustment in the RMB exchange rate has basically completed PBoC Deputy Governor Yi Gang hosted a press conference this morning commenting on the central bank's latest action in the foreign exchange market.

In the press conference, Yi said that the Chinese foreign exchange regime has now become more market-oriented and this is good for the exchange rate's long-term stability. He commented that market volatility brought about by the recent change in the setting mechanism of the CNY fix rate would be limited, and the changes made are positive news for the internationalisation of the RMB.

Yi further commented that a fixed unmanoeuvrable exchange rate is not suitable for China and not positive for the development of the Chinese economy. Yi believes that after a near-term adjustment period the market will return to normal, and said that the adjustment in the RMB exchange rate has basically completed.

He also said the goal of the PBoC in the latest action is to allow the market to determine the RMB exchange rate level. He said the PBoC has already withdrawn from the usual ntervention, but when the market is distorted the PBoC would intervene. He also said that reports of PBoC seeking a 10% depreciation on the RMB is nonsense.

The de facto USD/CNY peg has ended. In our view, the PBoC has declared that its frequent interference in the FX market has officially ended. The central bank claims that it is no longer intervening frequently in the FX market, suggesting that the CNY is no longer a de facto peg against the USD. The PBoC said it has no intention of allowing the RMB to continue depreciating, and explicitly said that the current level of the RMB is in line with economic fundamentals.

The PBoC explicitly refused to spell out the fair value of the RMB, but said it is subject to market demand and supply conditions and movements in other world's currencies. We are inclined to point to the fair value based on past year's trade-weighted benchmark which is round 6.45–6.5, though we sense that the PBoC is willing to settle at around the current market level (6.4). The exchange rate would move in the future according to economic fundamentals and other world currencies' movements.

Through this press conference, we think the PBoC plans to stabilise the market after three days of RMB depreciation. We do not know how the RMB will perform in the near term, but are inclined to believe that the PBoC has achieved its goal to meaningfully depreciate the currency while switching to a new exchange rate regime.

PBoC has denied some reports stating that it is seeking a 10% depreciation in the RMB to support exports and we agree with that view. Nonetheless, the central bank has left the door open that, in case there are excesses in market volatility, it will step in to intervene.