“Basically stable” renminbi slides lower

Three months after the People’s Bank hinted that it would in future manage the renminbi relative to a currency basket rather than the dollar the jury is still out on what this means in practice. Contrary to many fears, the renminbi has not weakened significantly against the dollar. In fact, against the US currency it is now back to where it was at the beginning of the year. But the PBOC has taken advantage of a period of broad dollar weakness to allow the renminbi’s trade-weighted rate to slide. If this continued, the cumulative depreciation would soon mount – and undermine the PBOC’s case that the currency is being kept “basically stable”. More likely in our view is that recent trade-weighted weakness will reverse particularly if, as we expect, the dollar rebounds against other major currencies later this year.