The PBOC fixing is out and is down to its lowest in five years, from Zero Hedge:
As Kevin Lai, HK-based chief economist of Asia ex-Japan at Daiwa Capital Markets writes in note released overnight, round two of China capital outflows is about to begin, if second half last year was considered the first round. This is what he believes will happen next:
China’s FX reserves may fall below $2t in about a year
Downward pressure on FX reserves is most likely to be underestimated as short-term speculative flows are far more ready to leave than real flows
Based on estimates, about 49% of PBOC’s FX reserves are made up of flows which are speculative and short-term in nature
Expects decline in FX reserves to be more rapid in next 24 months at least
Look for further $500b decline to $2.7t by end-2016 and a further $900b decline to $1.7t by end-2017
If companies, especially SOEs, face trouble paying back creditors, central government would bail them out
Massive bailouts would require government’s monetary policy to turn a lot more aggressive, putting more pressure on yuan
Policymakers would have to seriously think about letting CNY slide gradually to a better equilibrium level
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
