Former China official warns of yuan weakness in 2022 as economy slows


SHANGHAI : China should prepare for its currency to pull further away from recent highs if economic data continues to disappoint next year, a former senior official at the country’s foreign exchange regulator has warned.

The dollar index could dominate the yuan’s movements in 2022, even if China’s exports remain strong, as the year-end corporate demand that has otherwise held up the Chinese currency fades, said Guan Tao, global chief economist at BOC International.

Guan previously headed the balance of payments department of the State Administration of Foreign Exchange (SAFE) and his comments appeared in an article published on Chinese financial media outlet Yicai on Monday.

The yuan’s rally against a strengthening dollar since September was “not driven by changes in market expectations, but was supported by real demand from the trade surplus,” he said.

Under such circumstances, if dollar strength continues on expectations of tighter U.S. monetary policy, markets “should not rule out chances for corrections in the yuan exchange rate”, Guan wrote.

The Chinese yuan has gained more than 2per cent against the dollar so far this year to become the best performing major emerging market currency. In trade-weighted terms, the yuan is at its strongest since late 2015.

To arrest the economic slowdown, China cut its lending benchmark loan prime rate (LPR) for the first time in 20 months on Monday, in a bid to prop up growth in the slowing economy.

Analysts now expect the divergence in monetary policy between China and other major economies to undermine China’s yield advantage in the new year and trigger some capital outflows.

Guan warned last week that avoiding excess yuan appreciation should be one of China’s priorities in managing market expectations.

(Reporting by Winni Zhou and Andrew Galbraith; Editing by Sam Holmes)


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