It seems that China has carried out some sort of policy easing by weakening the yuan in the first half of 2016. Even if the pressure on capital outflows has alleviated, the Chinese yuan has depreciated considerably against the US dollar and other major currencies in the last two quarters.
The official CNY index (CFETS Index) fell 6 percent in the first half of 2016. This was the largest drop in history, showing that China could have steered a rapid depreciation of the yuan to stimulate economic growth, noted Commerzbank in a research report.
But since there has not been much of a rebound in exports, the nation will have to depend on domestic demand to underpin growth. Furthermore, the threat of outflow of capital is also expected to arise if one-way depreciation continues, said Commerzbank. However, the Chinese yuan is not expected to depreciate rapidly.
“We maintain our USD/CNY forecast at 6.65 for end-2016,” added Commerzbank.
