Personal foreign exchange purchasing demand slightly increased after the Spring Festival; however, due to continuous weakness of US dollar index (100.6997, 0.0308, 0.03%) in recent period, offshore RMB (6.8782, 0.0123, 0.18%) became strong and realized three continuous appreciations in recent days, and the “upside-down” value of onshore price once exceeded 600 basis points.
RMB-USD onshore price was concluded as 6.8637 at 4:30 p.m. on Monday (Feb. 6), which was 103 basis points or 0.15% higher than that of last Friday; this figure was 90 basis points stronger than 6.8727 concluded at 11:30 p.m. of last Friday, but RMB-USD spot rate was reduced by 23 basis points on Tuesday (Feb. 7) and concluded as 6.8660.
As for RMB-USD offshore price, it once broke 6.8 and became as high as 6.7963 on Monday morning, and the lowest point was 6.8137; premium between offshore and onshore RMB once exceeded 600 basis points, while the latest was hovering at 6.8080 on Tuesday. According to the latest announcement of China Foreign Exchange Trade System on Tuesday, the middle rate of RMB-USD was reported as 6.8604, which was two basis points higher than that of Monday; however, the middle rate on Tuesday was 33 basis points stronger than RMB at-sight closing price 6.8637 at 4:30 p.m. on Monday, and 35 basis points stronger than last trading price 6.8639 at 11:30 p.m. on Monday.
Quoting from trader, Reuters points out that the personal foreign exchange purchasing demand slightly increases after the Spring Festival and USD exchange rate has been in weakness trend, and some institutions continue to try to buy into RMB, which is beneficial for promoting rebound of RMB exchange rate; in addition, USD becomes relatively weak in recent period; moreover, offshore price continues to be over 500 basis points higher than onshore price, which is beneficial for relaxing depreciation value of onshore price. Furthermore, RMB exchange rate index (CFETS) has been down to the lowest point of three months; when market price is 80 to 100 basis points lower than middle rate, some big banks will carry out settlement of exchange, which may reflect that the regulation level doesn’t expect RMB to be weak when U..S dollar is being adjusted.
On the other hand, as announced by the People’s Bank of China on Tuesday, with gradual funds withdrawal, liquidity gross of banking system is in higher level; in order to maintain basic stability of liquidity of banking system, reverse repurchase in open market was not carried out temporarily on Tuesday; this is suspension operation of open market for the third consecutive day by the People’s Bank of China. Originally, reverse repurchase of RMB 120 billion yuan in open market expired on Tuesday, i.e., the net funds withdrawal of today is 120 billion yuan; together with net funds withdrawal RMB 150 billion yuan on Monday, the total value of funds withdrawal is up to RMB 270 billion yuan in the 2 days.
As pointed out in the latest article of China Securities Journal, facing huge sum of expired funds withdrawal pressure, “non-distribution of money” by the People’s Bank of China just means “calling collection of money”; even though there is support from cash withdrawal, if the People’s Bank of China doesn’t carry out necessary hedge, liquidity-expired funds withdrawal will become a huge test of financial institutions in the year of the Rooster. According to statistics, liquidity-expired funds withdrawal sum in February is about RMB 2.5 trillion yuan.
Quite a few insiders indicate that funds withdrawal liquidity of the People’s Bank of China after the Spring Festival conforms to the convention, but direct suspension of open market operation is rare; in combination of up-regulation of multiple policy interest rates by the People’s Bank of China, operation margin tightening of monetary policy by the People’s Bank of China becomes more obvious; however, current fundamentals don’t support the comprehensive, large-scale and continuous tightening of monetary policy by the People’s Bank of China, so it’s estimated that the future liquidity supply and demand tight balance will be normal state; the possibility of intermittent fluctuation is still large, but the People’s Bank of China will avoid excessive tension of liquidity.
In addition, as reported by mainland media, the newly-increased credit scale in January this year was expected to reach a record high. Recently, some banks received the credit control notice of the People’s Bank of China to reduce credit loans in different levels. As instructed by the receiving window of one bank with its headquarter set in Shanghai, the newly-increased scale of loan shall be reduced greatly in full range from January; all company and personal loan projects shall be reported one month in advance; currently, only consumption loan of relevant banks can be released on time, and all other loans will be delayed for one month or more.
Moreover, as expressed by Zhang Shenghui, the Director of Administrative Inspection Department of State Administration of Foreign Exchange in the interview ofChina FOREX, banks will continue to be taken as the entry point this year to intensify the punishment on various foreign exchange behaviors violating laws and rules, especially to crack down on such foreign exchange behaviors as “evasion and fraud of foreign exchange, arbitrage of exchange and illegal interest arbitrage”, and unlawful and criminal activities such as illegal private banks; to strengthen inspections on institutions with significant influence on foreign exchange administration and cross-border capital flow, as well as key industrial field, key bodies and key links, and to insist on the base line of non-occurrence of systemic financial risk.
Zhang Shenghui pointed out that, in respect of continuing to crack down on illegal private banks, the first is to exploit analytical data and strive to promote the systematization of case clues; the second is to actively cooperate with public security department and practically play the role of collaborative working mechanism; the third is to explore the illegal sources by focusing on core problems; the fourth is to utilize multi-channel publicity to frighten illegal behaviors, and urge all relevant banks to strengthen internal control, carry out authenticity and compliance audit, and avoid becoming the tool for transfer of illegal private banks.
