The Entanglement Of RMB Exchange Rate And Interest Rate

The impact of the US dollar on China's exports and monetary conditions is all through the relatively stable exchange rate between the RMB and the US dollar. The flexibility of RMB exchange rate can raise the degree of freedom of domestic monetary policy. This year, the RMB dollar exchange rate flexibility has increased. In the first half of the year, the depreciation of the RMB against the US dollar is conducive to reducing the appreciation of the RMB effective exchange rate brought by the appreciation of the dollar. China's export growth has accelerated in recent months.

In the future, the impact of the US dollar strengthening on the domestic monetary environment depends on the exchange rate elasticity of RMB against the US dollar. Looking ahead, the fluctuation of the RMB exchange rate is still limited. The rise of the US dollar index still has a tightening effect on China's total demand and monetary conditions. If the renminbi fluctuates against the US dollar and depreciates with other currencies against the US dollar, the central bank will have less pressure to stimulate domestic demand by lowering interest rates. The current appreciation of the US dollar reflects the differentiation of the economic outlook of the US and Europe (the prospect of the US recovery is improving, but the European economic prospect is dim), and the overall impact on China's external demand is offset. Therefore, the future trend of the RMB exchange rate is still the most important factor determining China's exports. Looking ahead, the RMB exchange rate elasticity has increased, but the central bank allows the RMB to depreciate against the US dollar less likely, so exports will still be damaged in general. RMB versus US dollar exchange rate Under the assumption of fundamental stability, the pressure of domestic capital outflow will increase due to the rise of the US dollar index, and the monetary conditions of the country are facing an independent tightening, and the central bank still has the pressure to relax.

July economic data It shows that China's economic recovery has weakened, and monetary credit is much lower than expected, and monetary policy easing pressure has increased. Although the slowdown in domestic economic growth is mainly due to the slowdown in domestic investment demand brought about by the adjustment of the real estate market, the rising trend of the US dollar index at this time will cause China's economic growth to add to the pressure and relax domestic pressure. The central bank's RMB exchange rate policy and interest rate policy will be intertwined: if unwilling to tolerate the depreciation of the renminbi, the pressure of interest rate cuts will increase.

strong dollar The risk premium increases the pressure on the central bank to cut interest rates. A stronger US dollar usually reflects a drop in risk appetite, and global asset allocation is returning to safe assets. Although the central bank's open market operation can hedge domestic money supply which is reduced by capital outflow, it is also difficult to hedge the rise of risk premium. At present, China's real estate market is in the adjustment stage, and the debt ratio of domestic enterprises and local financing platforms is high. The rise of risk premium may exacerbate the adjustment of real estate and the deleveraging of enterprises. One factor to be concerned is that in recent years, domestic enterprises and financial sector (especially real estate development enterprises) have been raising funds overseas, and the interest rate of the US dollar has increased and the appreciation of the US dollar will increase the debt paying burden of these sectors. The rise of the US dollar may increase the risk of premium in China's real estate market by increasing the risk premium, while increasing the risk of the financial system, which will have a greater impact on the domestic economy. Theoretically, this will increase the pressure on the central bank to cut interest rates, but the central bank's monetary policy changes need data confirmation. If China's real estate market and macroeconomic data continue to fall in the coming months, it will bring the space and time window for the central bank to cut interest rates.