Title: Research & Analytics Notification
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----- Original Message -----
Sent: Saturday, July 23, 2005 6:13 PM
Subject: Market report2: Asia: RMB revaluation and regional
implications
Assalamualaikum
For those interested to read the full report, pls email
me by 30th July
| Asia: RMB revaluation and regional
implications |
China shifted away from a USD-peg to a peg to an
unspecified currency basket. RMB appreciated against USD by 2.1%. The
trading band stays at +/- 0.3%. We expect the RMB to appreciate an
additional 4-7% within the next 12 months and the band may be widened to
1-2% once the market settles after the initial excitement. We look for a
Singapore style of currency basket to be the eventual form, with heavier
government intervention and a big USD weight in the basket.
We see
limited impacts on the economy. Exports could be affected by 2-3 p.p.
(more on exporters' margins) and GDP growth by 0.1-0.2 p.p. for the rest
of 2005, based on a new exchange arrangement. In fact, current USD
strengthening and high commodity prices have a more damaging effect on the
economy than this RMB move.
Hot money inflows may pick up, but we
see Beijing launching a crack-down on hot money rather than letting the
exchange rate move up further. We do not see significant implications on
China's buying of US Treasuries in the near future.
Malaysia
shifted to a managed float system following China's move. We expect the
MYR to appreciate by 1.5-2.5% at most, over the next six months.
Our analysis suggests that the impact of RMB revaluation on Asia's
real sectors will be limited and that much of the adjustment will be
through the region's currencies. With domestic demand sluggish and
external sectors weakening across much of Asia though, we see an incentive
for central banks to keep their currencies soft against whatever level of
RMB movement. In most cases, we expect emerging Asia's currencies to
appreciate by about 0.6-1.2% against USD compared to a 3-5% appreciation
in RMB. |
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