Yuan deposits might weaken in the near term after China’s surprising fixing reform in August, a policy move that aims to facilitate its inclusion in the reserve currency basket rather than boost export competitiveness, Standard Chartered Bank said yesterday.
“We believe China’s latest fixing reform increases the chance of its currency being included in the special drawing rights (SDR) basket by the end of this year,” the British bank’s Hong Kong-based analyst Eddie Cheung (張敬勤) told a media briefing in Taipei.
Cheung put the chance of inclusion at 60 percent when the IMF holds a review meeting in November and carries out the policy in October next year.
The drastic move last month by China to cut yuan guidance rates by 1.9 percent demonstrated its willingness to meet the IMF’s calling for a more market-driven foreign exchange regime, Cheung said.
The change will help narrow the gaps between onshore and offshore yuan exchange rates, he said.
It has also prompted investors to cut yuan holdings, with the fund outflows likely to last for a while, said Ding Shuang (丁爽), another Standard Chartered Hong Kong-based analyst.
China’s economic slowdown plays a part in the fund flight, Ding said.
Consequently, the yuan might continue to depreciate versus the US dollar, a trend that does not bode well for yuan deposit accumulation, Ding said.
Gross issuance of dim sum bonds, certificates of deposits and Formosa bonds stood at 27 billion yuan last month, down from 31 billion yuan in July and 46 billion yuan in June, the bank said.
Standard Chartered Bank expects the yuan to trade at 6.5 against the greenback this year, from a previous forecast of 6.19.
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