Experts rule out further RMB slide

A worker counts Chinese currency renminbi at a bank in Linyi, East China's Shandong province. [Photo/Xinhua]

Although the Chinese currency renminbi faced some downward pressure in the past few trading days, there is little room for it to head further south in light of the economic recovery that is on track, said experts on Thursday.

In offshore trading Wednesday, the yuan dipped 0.3 percent to 7.0201 per dollar at one point, while onshore trading saw the renminbi's exchange rate against the greenback slide 0.4 percent to 7.0026 once, according to Bloomberg data.

It is the first time in five months that both the indicators breached the 7-per-dollar threshold. Onshore RMB touched 7.0145 and offshore RMB 7.0323 Thursday afternoon.

The renminbi's central parity rate quoted by the China Foreign Exchange Trade System was lowered by 219 basis points to 6.9967 on Thursday.

Ming Ming, chief economist of CITIC Securities, said the US banking industry's crisis has intensified the risk aversion sentiment in the market. Meanwhile, the market expectation of interest rate cuts in the United States has cooled due to the unexpectedly prolonged inflation. All these have pushed up the US dollar index recently, exerting pressure on the renminbi.

China's short-term economic fundamentals have not formed strong enough support for the renminbi either, as the April economic data were worse than forecast, he said.

Although China's fixed asset investment increased by 4.7 percent during the first four months of this year, the growth rate was 0.4 percentage point lower than that registered in the first quarter, the National Bureau of Statistics said on Tuesday.

The output made by industrial companies with an annual sales revenue of at least 20 million yuan ($2.9 million) each increased by 5.6 percent in the first four months, lower than the previous market estimation of over 10 percent growth.

But the NBS noted that the overall economic recovery is on track, with most production demand indicators showing year-on-year growth.

In a news conference in March, Yi Gang, governor of the People's Bank of China, the country's central bank, said that any renminbi fall below the 7-per-dollar level would no longer be a psychological barrier because China's economy and market expectations are stable.

Wang Qing, chief macroeconomic analyst with Golden Credit Rating, said that the renminbi's exchange rate has fallen below the 7-per-dollar level for three times in the last five years. But every time, it soon rebounded and went above the 7 mark, showing stronger elasticity of the Chinese currency.

Wang said there is little room for the renminbi to depreciate significantly. For one, the US economy is facing further downward pressure, pointing to little likelihood of a continued rising US dollar index.

For another, as China's economic recovery continues, all market interest rates including the renminbi deposit rate will return. The current situation of a lower settlement rate and high selling rate, which has affected the renminbi exchange rate, will not last long. Economic fundamentals will become the major support for the Chinese currency, he said.

In late April, Nomura Asia raised its China 2023 annual GDP growth forecast to 5.9 percent from its previous estimate of 5.3 percent. JPMorgan raised its 2023 growth outlook to 6.4 percent, up from its previous forecast of 6 percent, saying further growth can be expected.