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Foreign Exchange

StanChart cuts RMB forecast; offshore deals might be boosted

Standard Chartered analysts have revised their forecast for the renminbi against the dollar, adding to growing doubts about the appreciation of China’s currency.

That could help bankers convince mainland corporations to tap the market in greater size, according to EuroWeek, a sister publication of EuromoneyFXNews. Bankers in the loan and bond markets hope that the weakening of the renminbi will make originating deals easier this year, as Chinese companies worry less about taking on debt that will be worth less in foreign currency terms.

That could stem a dwindling issuer base in the dim sum bond market this year, and loans bankers hope it will also lead to a boost for the still embryonic offshore renminbi loan market.

Robert Minikin and Wei Li, currency analysts at Standard Chartered, told the bank’s clients that volatility, rather than a clear trend, was likely to define the trading of the renminbi against the dollar for the rest of the year.

They also cut their year-end forecast for the currency from Rmb6.21 to Rmb6.31, although they expect the currency to claw back to Rmb6.19 by the end of 2013.

Standard Chartered has now joined a cacophony of voices casting doubt on the appreciation of the currency this year, after the renminbi weakened against the dollar during May.

However, while scepticism about the currency has become widespread, some analysts — for instance, Dariusz Kowalczyk, a senior economist at Crédit Agricole CIB — still think the currency will resume a slow appreciation in the second half.

This debate will help bankers in the offshore market, by creating more two-way liquidity in offshore bonds and interest-rate swaps — as well as by removing a roadblock to issuance for many mainland borrowers.

“The two-way movement of the currency is good for the development of the market,” says Anup Kuruvilla, a loan markets origination banker at the Royal Bank of Scotland. “It is never good in the long run when everyone is taking a one-way bet.”



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