In the wake of the People’s Bank of China (PBoC) raising and then promptly lowering its USD/CNY fixing in March, analysts at ING pointed to a weakening of Asian currencies and speculation that China’s focus on market stabilization might have lessened as factors supporting the idea of the central bank tolerating a weaker renminbi.
But with an assessment of China’s currency policy being as difficult as ever to establish with any certainty, there is little agreement over whether or to what extent the PBoC will entertain letting the renminbi slide.
According to Styliana Charalambous, Europe, Middle East and North Africa market analyst at VT Markets, the performance of other Asian currencies greatly influences China’s strategic decisions regarding the renminbi. Depreciation in neighbouring currencies is seen as creating a more favourable scenario for a controlled depreciation of the renminbi.
“However, the PBoC remains cautious, aiming to avoid a devaluation race that could lead to broader regional economic instability,” she says. “The approach of gradual and controlled depreciation ensures predictable and manageable shifts in the renminbi’s value, thereby reducing the risk of negative economic spill-overs, while preserving investor confidence and financial stability.”
