Abstract [The market does not seem to fully understand the shift in the mindset of central bank policy makers, concentrating on inflation indicators and ignoring asset price indicators, and we believe that even if inflation levels are not as good as targets, the Fed and ECB monetary policy normalization in the second half of 2017 May also keep more...
[The market does not seem to fully understand the shift in the mindset of central bank policy makers, concentrating on inflation indicators and ignoring asset price indicators, and we believe that even if inflation levels are not as good as targets, the Fed and ECB monetary policy will be normalized in the second half of 2017. May keep a faster pace]
In the first half of 2017, the RMB exchange rate performance was stable, and the pressure on cross-border capital outflows was significantly reduced. The Chinese authorities seized the â€œwindow periodâ€ of reform and promoted some structural reforms. However, the price advantage of production factors narrowed, resource allocation was distorted, and economic and financial Risk accumulation is a long-term challenge that China will face.
In the second half of the year, the RMB exchange rate may face three variables: Trump is empty, the main central bank's monetary policy normalization rhythm exceeds expectations, and China's opening to the outside world is less than expected.
After Trump's election, the US dollar index surged 5.57% in one month. In the first half of his term, the US political crisis continued, and the implementation of Trump's policy was almost difficult. The Trump deal gradually waned. Although the US economic data was bright in the first half of 2017, the Fedâ€™s interest rate hike accelerated, and the US dollar index oscillated down to a high of 103.52 to 95.58, a drop of over 7%.
In fact, the market sentiment seems to be too disheartening. After the break-in period, the US party clash index has dropped significantly. Trumpâ€™s performance in the Sino-US 100-day plan and negotiations with large global companies is also The circle can be ordered. Therefore, in the short term, Trump's profit will not drag the US dollar index as much as possible.
The weak US inflation and retail data in June made the market believe that the Fed may slow down the normalization of monetary policy in the future, and the federal funds rate futures showed a lower probability of the Fed raising interest rates in September. However, when the market is still prejudged by the traditional Taylor rule, the global central bank's thinking mode has quietly changed.
The Bank for International Settlements (BIS), known as the â€œCentral Bank of the Central Bank,â€ points out that the financial cycle provides more accurate information than inflation when assessing economic cycles and natural or real interest rates. Therefore, inflation is not the only prerequisite for monetary policy tightening.
Guided by such a central bank's mindset, the Bank of Canada raised interest rates for the first time in seven years in July, and the Bank of England clearly stated in the rules of the Monetary Policy Committee: "Efforts to keep inflation at a target value may exacerbate financial imbalances, for which financial policy The committee needs to determine whether there is a potential financial stability risk. The macro policy prudential policy of the Financial Policy Committee is the first line of defense against this risk, and in this case, the Monetary Policy Committee can temporarily deviate from the inflation target."
The market does not seem to fully understand the shift in the thinking mode of central bank policy makers, concentrating on inflation indicators and ignoring asset price indicators, and we believe that even if inflation levels are not as good as targets, the normalization of the Fed and ECB monetary policy in the second half of 2017 may Maintaining a faster pace, on the one hand, the dollar and the euro will be stronger and liquidity will be tight; on the other hand, the downside of asset prices may cause asset management companies' funds to flow into other economies, and will play a role in strengthening the dollar and the euro.
In the second half of 2016, the RMB exchange rate suffered â€œWaterlooâ€, the foreign exchange reserves dropped significantly, and the capital outflow pressure surged. China also strengthened capital controls. Now the market sentiment is stable, the RMB exchange rate is stable, and the Chinese authorities have once again opened the RMB internationalization process. And the external commitment will continue to attract foreign investment and expand opening up.
However, according to the latest data released by the SAFE, in the first quarter of 2017, the net outflow and omissions net outflow was 57 billion US dollars, which is equivalent to the outflow scale in the fourth quarter of 2016. The Chinese authorities have adopted strict capital controls and enhanced market confidence. In the case of the outflow under the item, the outflow of the gray channel did not ease.
Considering that China often has multiple management objectives, it adopts a camera choice method in the application of policies. If Trump's performance and the normalization of the main central bank's monetary policy are stronger than expected, the unilateral downward trend of the RMB exchange rate will reappear, the foreign exchange reserves will fall, and the short-term capital outflow pressure will return, and stability will become the main policy objective of the stage. Chinaâ€™s opening to the outside world is less than expected, which will make the RMB exchange rate problem worse.
(The author is a researcher at the First Financial Research Institute)
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