Growth ‘slowing’ to 6.5%, yuan falling

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July 5, 2017

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Growth ‘slowing’ to 6.5%, yuan falling

By Feng Jianmin and Huang Yixuan | 00:01 UTC+8 July 5, 2017 |

Print Edition

CHINA’S economy is expected to grow 6.5 percent this year with the yuan weakening to 7.1 per US dollar, Commerzbank said yesterday.

A slowdown in the real estate market and policymakers’ commitment to deflating asset bubbles will drag domestic economic growth for the year down from first quarter’s 18-month record of 6.9 percent.

China’s policy tone has turned less dovish since late 2016 and the People’s Bank of China will continue to maintain relatively tight liquidity to force de-leveraging in the banking sector, said Zhou Hao, senior economist at Commerzbank emerging market research.

Zhou said downward pressure on the yuan remains and it may weaken about 2 percent annually against the US dollar over the next two years.

That would lead the yuan to end 7.1 per US dollar by the end of this year and 7.25 by the end of next year.

He said the US dollar may pick up in the fourth quarter, forcing the yuan weaker so that the yuan is kept relatively stable with a basket of currencies.

Zhou said it’s unpredictable how the central bank may choose to release depreciation pressure, and a one-off depreciation as seen in August 2015 is possible in the fourth quarter.

The yuan yesterday weakened on the onshore market against the dollar for the third consecutive day as the greenback strengthened.

The yuan closed at 6.7999, down 102 basis points from Monday.

The market followed the central bank’s movement yesterday morning that tuned down the central parity rate by 117 basis points to 6.7889 to the dollar.

The yuan is allowed to be traded within 2 percent either side of that rate.

China’s central bank introduced a “counter-cyclical factor” into its calculation of the parity rate as the monetary authority improves the mechanism to better reflect market demand and supply.

This also makes it more difficult for the market to predict the official rate.

Economy

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Growth ‘slowing’ to 6.5%, yuan falling

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