China: Revising RMB forecast – Deutsche Bank

Analysts at Deutsche Bank are revising their year-end forecast of USDCNY to 7.1, 7.6 and 7.9 in 2017, 2018 and 2019 respectively (7.4, 8.1 and 8.1 before revision).

Key Quotes

“The implied RMB depreciation against the CFETS basket will be around 1.7%, 4.2%, and 5.6% in these years. The surprisingly strong RMB so far this year benefitted from (1) effective capital controls, at least in the short term; (2) the strength of other major currencies against the dollar; and (3) stronger than expected growth and higher rates in China. These positive factors for RMB may not help in H2 and the next few years.”

“DB economists and strategists expect other major currencies to depreciate against the dollar in H2. Growth in China is likely to slow. When it slows the monetary policy stance will likely loosen again, bringing domestic interest rates down. Capital controls will likely become less effective in the long term.”