The Central Bank Sharply Raised The Central Parity Of RMB To Control Depreciation.

This week, traders' bearish sentiment towards the renminbi has risen to the highest level since the financial crisis.

Bloomberg data showed that the risk reversal rate of the renminbi's delta value of 25 a month has soared 78 basis points this week, the biggest weekly gain in more than three years.

The index hit 2.68 percentage points on Thursday, the highest level since January 2009.

This index measures the premium of the RMB against the US dollar put option on the call option.

A similar index for offshore renminbi is 3.2 percentage points, the highest Asian currency.

Prior to that, the people's Bank of China decided to reduce the RMB deposit reserve ratio of financial institutions by 0.5 percentage points since February 5, 2015.

This is the first comprehensive reduction in the central bank since May 2012.

In November 21st last year, the Central Bank of China cut interest rates unexpectedly and entered the relaxed ranks of the global central bank.

After the announcement of the exchange rate of offshore RMB against the US dollar, it instantly lost more than 100 basis points in two minutes, rising from 6.2491 to near 6.2600.

The market believes that China's response to loosely global competition means that the RMB exchange rate will also enter a devaluation channel.

China's central bank sharply raised Renminbi today

In fact, yes.

In a reply, the central bank did not expect the RMB exchange rate to depreciate too far.

If the market thinks that the yuan will continue to depreciate in the future, there will be more capital outflows.

Once the outflow of funds and the deterioration of the currency devaluation will prompt the central bank to continuously and quickly reduce its accuracy, it may lead to a vicious circle.

Even the central bank must stop easing and deflate.

Therefore, I expect that the RMB exchange rate will still be controlled within a reasonable range of adjustment.

RMB will remain general

Partial depreciation.

If we want to internationalize the RMB, if we want to keep the existing international monetary position, we will control the pace of depreciation.

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There are three main reasons for the overvaluation of the renminbi:

First, according to the theory of purchasing power parity, the same quality of commodities, including bulk agricultural products (000061 shares), is cheaper than the domestic market, which means that the RMB is overvalued.

In fact, in recent years, the prevalence of tourism in Shenzhen has been popular. People in Hongkong actually buy daily necessities in Hong Kong, which is evidence that the renminbi is overvalued.

This year's central document No.1 pointed out that the price of China's staple agricultural products has been higher than that of the international market for many reasons, but the overvaluation of RMB is certainly one of its important factors.

It is not alarmist. If the RMB continues to appreciate, it will surely destroy the whole Chinese agriculture.

Second, according to the theory of interest rate parity, does China still have room to raise interest rates? I don't think so. If interest rates are pulled up again, even if they remain the status quo, China's real economy will go bankrupt in large areas.

In fact, the difficulty of financing and the high cost of financing are the real problems that lie ahead of the Chinese government.

Well, if we think that the RMB interest rate fall is expected to be determined, and the US dollar rate hike is expected to be determined, why does the renminbi have to continue to appreciate?

Third, the downward pressure on China's economy is huge, and the US economy is not stable enough, but at least it is a shock.

Based on the comparison of economic fundamentals, should the RMB appreciate or depreciate against the US dollar at least?

We always say: let the market supply and demand determine the RMB exchange rate.

Sorry, the theoretical basis of this view is the effective market hypothesis.

This theory holds that all information that affects prices will be included in the results of market exchanges.

Since China's trade is "unbalanced", the change in the RMB exchange rate will automatically restore its balance.

Is that so?