Renminbi trade band widening has no rating impact: Fitch

The widening of the Remninbi trade band will not necessarily signal a shift to a new exchange rate framework, Fitch Ratings has said.

China’s will to allow their currency to rise or fall against the dollar by up to 1% from the daily official exchange rate, up from 0.5% previously, the People’s Bank of China said Saturday. Last week Fitch affirmed China’s Foreign-Currency IDR at A+ with stable outlook.

A statement by Fitch said: “We do not think a meaningful change in currency policy is likely any time soon. The move, effective yesterday, therefore has no ratings impact.”

“This band remains narrow. Its widening is consistent with the Chinese authorities’ strategy of making the renminbi/dollar rate less of a one-way bet, with the intention of deterring potentially destabilising, speculative “hot money” inflows. As such, it could be interpreted as an attempt to bolster the existing managed exchange-rate framework, rather than a move towards liberalisation. We regard such liberalism as unlikely in 2012 given global macro-economic uncertainty and the impending handover in domestic leadership in China.”

Fitch went on to argue the abandonment of China’s extensive capital controls would have a greater long-term significance would be the removal of China’s extensive capital controls, which might aid the move to a consumption-led economic model, although they do not think this transition will take place in the near term.

Fitch also affirmed China’s Local-Currency IDR at AA- with a Negative Outlook. This reflected Fitch’s expectation that more debt will move on to China’s sovereign balance sheet following the credit surge of 2009-2011.


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