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AXA Investment Management (AXA IM), a unit of French AXA Group, said Thursday that although the pressure on RMB exchange rate has eased in recent days, China-US interest rate gap will continue to push the RMB weaker in the medium term. The bank's basic forecast for the RMB exchange rate against the US dollar is that it will fall to 7 this year, but if the Sino-US trade war breaks through, the RMB may have room to rise against the US dollar.
Yao Yuan, senior economist at AXA Investment Management Emerging Asia, said at a press conference that in recent days, the market climate has improved, the US dollar has weakened, the market is looking forward to positive results in Sino-US trade negotiations and the inflow of overseas funds into China's bond market at the end of last year, which will provide short-term support for the RMB.
"In the medium term, US interest rates are falling, but Chinese interest rates are falling even more, which will weaken the RMB, so our basic forecast is that the RMB will hit 7 against the US dollar sometime this year." Yao Yuan said.
He pointed out that this basic prediction assumed that the trade war could not be resolved. The Bank expects that the renminbi will not break 7 in the short term; if the trade war breaks out, the renminbi is more likely to rise against the dollar.
In addition, Yao Yuan also pointed out that the medium-term lending facility (MLF) due in the next 12 months will reach 9 trillion yuan. If the People's Bank of China does not reduce the deposit reserve ratio (RRR), and MLF matures one after another without replacement, it will tighten the monetary base in disguise. So the bank expects the bank to cut its reserve requirement ratio by two to three times for the rest of the year.
He said that liquidity is still abundant in China. The problem is that the transmission mechanism of liquidity from the financial system to the real economy is not effective.
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