Key takeaways

• On 24 September, China unveiled an outsized easing package…
• …but this may just be the start, in our economists’ view.
• USD-RMB performance hinges on any improvement in Chinese asset inflows and US election risks amongst others.

On 24 September, China’s regulators, including the People’s Bank of China (PBoC), the National Financial Regulatory Administration (NFRA), and the China Securities Regulatory Commission (CSRC), held a joint press conference, announcing a slew of easing policies, covering three main areas: monetary policy, property policy, and capital market policy. The measures are summarised in the table below:

Source: Xinhua, Bloomberg, HSBC

The stimulus package, beating market expectations, is more cyclical in nature, but is a good starting point for further easing to shore up growth, in our economists’ view. More will have to be done in terms of housing stabilisation, but it may take longer to be rolled out. As there is a need to support liquidity and market sentiment, facilitate credit issuance and boost growth, our economists now expect a further 10bp cut to interest rates, another 50bp of RRR cut, and another RMB1trn of special government bonds to come before the end of 2024.

As for the RMB, the offshore RMB (known as “CNH”) strengthened briefly past 7 per USD for the first time since May 2023, as markets are digesting these stimulus measures this morning (Bloomberg, 25 September 2024). In our view, if the new measures offer fresh expectations of a comeback of equity inflows into China or a potential revival of risk appetite, the RMB may see more support.

But the question remains whether the inflows will be strong enough to offset other potential drags on the RMB. For example, with the PBoC’s monetary easing, China’s yield gap against the USD may widen again, especially considering that markets pricing for US rate cuts have been more dovish than the Federal Reserve’s latest dot plot (i.e., 80bp of rate cuts vs 50bp by end-2024, Bloomberg, 25 September 2024). Uncertainties over the upcoming US elections may support the USD, and by extension, weigh on the RMB. It is also worth noting that the PBoC shifts to a neutral FX policy stance, with the governor, Pan Gongsheng, reiterating the central bank will prevent onesided expectations and overshooting risks. As such, the PBoC is likely to maintain two-way fluctuation of the RMB exchange rate.

https://www.hsbc.com.my/wealth/insights/fx-insights/fx-viewpoint/flash-2024-09-25/