By FXStreet Team China’s latest policy mix means a more flexible FX mechanism, more outbound flows and a long-term RMB usage boost. Yet, China’s cyclical outperformance is expected to narrow into 2H21, amid its deleveraging reform and global recovery. […] On 4 January, the PBoC along with five other regulators jointly issued an official notice on cross-border RMB policy aimed at promoting RMB usage in cross-border trade and financing. A day later (5 January), the PBoC and the State Administration of Foreign Exchange (SAFE) raised the macro-prudential parameter for corporates’ overseas lending (from 0.3 to 0.5), which would encourage outbound inter-company lending, especially in RMB. These measures suggest more relaxed outbound flows for corporates and local institutional investors.” Positive news flow around the Regional Comprehensive Economic Partnership (RCEP) and the EU-China investment deal should pave the way for more EUR/RMB and ASEAN/RMB settlement and direct trading. Meanwhile, China’s cyclical economic outperformance is expected to narrow into 2H21, as the Chinese authorities revert to leverage control, while the rest of the world is set to recover once COVID-19 is under control. This would lead to a lower RMB interest rate advantage as well as a smaller current account surplus.” […] The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.
Click here to read the full article