China’s currency interventions are only designed to slow fall in renminbi

Beijing will continue to intervene in the currency markets to counter downward pressure on the renminbi for the time being but the exchange rate is likely to keep falling in the long term, according to a report by analysts Pictet Wealth Management.

The report follows the publication of the People’s Bank of China’s third-quarter monetary policy report, in which the central bank made a key language change that indicates it is taking a more active approach to support the RMB, as the South China Morning Post notes.

“Over the long term, it looks likely that the Chinese government will have to allow the renminbi to depreciate more against the currencies of its major trading partners. Although, for the moment, it remains subject to the central bank’s intervention,” said Dong Chen, senior Asia economist at Pictet.

There is evidence to suggest that the People’s Bank of China has been drawing on the country’s large foreign exchange reserves to prop up the renminbi rate since August, with the bank likely attempting to keep the exchange rate above the psychologically important RMB 7 to the dollar mark.