UBS Revises Yuan-Dollar Parity Expectation, Says China's Forex Reserves Not to Fall Below Benchmark
Yicai Global
/SOURCE : Yicai
UBS Revises Yuan-Dollar Parity Expectation, Says China's Forex Reserves Not to Fall Below Benchmark

(Yicai Global) June 1 -- China's foreign exchange reserves may not fall below USD3 trillion benchmark this year thanks to currency stabilization and capital controls although the current account surplus may narrow, said a recent report from UBS, the Swiss global financial services company.

The UBS has also raised its expectation of the yuan-dollar parity, saying that the China's currency would not depreciate above 7.0 against the dollar, a reversal of the company's earlier predictions of 7.15.

The report, written by an UBS team led by the UBS Securities' China chief economist Wang Tao, anticipates that the yuan-dollar exchange rate will remain relatively stable in 2018, with the yuan not exceeding 7.1 parity against the dollar by the end of next year, compared with the UBS's previous forecast of 7.3.

The UBS doesn't expect any significant devaluation of the yuan against the dollar during this time period as the dollar is not expected to get substantially stronger next year and that China's capital controls over the yuan will continue.

The UBS also pointed out that the room for the yuan's appreciation will remain relatively limited, stating that if the dollar weakens further, China's government is likely to rein in the pace of renminbi's appreciation and devaluate the basket of currencies slightly, thus maintaining a stable exchange rate in case of a stronger dollar in the future.

The Swiss financial services company also maintained a 6.7 percent forecast for China's GDP growth this year, adding that it expects the GDP growth to slow down to 6.5 percent in the fourth quarter, while it estimates it will fall significantly, to 6.2 percent, in 2018.

The UBS said there were signs that China's short-term economic growth cycle had peaked, but the slowdown had lost momentum. Among them, the decline in the real estate market and the overall credit growth will be main reasons for future economic slowdown, it argued.

The yuan has recently maintained a strong parity against the dollar, with onshore yuan breaking 6.8 against the dollar on the morning of June 1. The offshore yuan approached 6.73. The intermediate rate of the yuan against the dollar rose to the highest point over the past nearly six months since January 6 this year.

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Keywords: Data , GDP , Yuan , Currency Exchange , Central Parity Rate , UBS , Dollar