China is unlikely to devalue the renminbi in order to spur exports and meet its 2015 economic growth target, which is widely expected to be about 7 percent, a top executive of DBS Bank said.
A surprise interest rate cut by the People’s Bank of China (PBoC) last month, which saw the one-year deposit rate slashed by 25 basis points to 2.75 percent and the lending rate brought down by 40 basis points to 5.6 percent, has fueled some talk in the market about a possible currency devaluation.
But Andrew Ng, head of treasury and markets at DBS, said on Monday that the mainland is unlikely to devaluate its currency as it wants the renminbi to be included in special drawing rights (SDRs) of the International Monetary Fund (IMF).
SDRs are international reserve assets set by the IMF to augment international liquidity by supplementing standard reserve currencies.
“I believe the volatility of the yuan will not be too high compared with other currencies. It will be comparatively steady,” Ng said.
“It also depends on how high the dollar will go. I think it’s possible that we’ll see the highest point of the US dollar in the first quarter, and there is a chance for it to fall back in the middle of second half of the year,” the DBS executive added.
He expects the onshore yuan to move in the 6.10 to 6.25 range against the US dollar in the coming year.
The redback’s daily midpoint against the US dollar has strengthened by 91 basis points to 6.1282 on Monday compared to the reference rate last Friday, according to the China Foreign Exchange Trading System. The currency is allowed to rise or fall by 2 percent from the central parity rate.
Ng said that the PBoC is likely to cut the benchmark interest rate by 25 to 50 basis points one or two more times next year.
The interest rate on yuan deposits in Hong Kong is expected to go down to between 2.5 percent to 3 percent across different tenors in the coming year as a result of the cut in benchmark rates.
Most banks in Hong Kong have increased the offshore yuan deposit rate to above 3 percent since the launch of the Shanghai-Hong Kong Stock Connect program last month. Banks are also scrambling for yuan deposits to polish their balance sheets at the year end.