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J.P.Morgan: Macro-Prudential Defense Mostly Symbolic, Unlikely To Have Big Impact On Flows

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J.P.Morgan believe that the PBoC’s “latest adjustment of the cross-border financing parameter belongs to the broader set of macro-prudential tools that the PBoC uses to manage systemic FX risks.”

  • “While these measures are not new and have been frequently deployed during previous currency depreciation episodes, they tend to work less efficiently than direct/indirect PBoC intervention or CNY fixings in short-circuiting currency weakness.”
  • “With external financing remaining much more costly than domestic borrowing, relaxation on cross-border financing restrictions is unlikely to attract much interest from corporates to lever up externally.”
  • “Since 2022, Chinese corporates have been paying down external deb, a trend we expect to have legs in 2H23.”
  • “In the meantime, onshore FX loans have also been falling at a much faster pace than FX deposits since last year, pushing the FX loan/deposit ratio to post-GFC lows.”
  • “This reflects the structural reluctance from corporates to tap external/USD financing given elevated costs, a behaviour that is unlikely to change fundamentally in the near term, despite the PBoC lifting the quota of external borrowing.”
  • “We see risk reward still favouring positioning for further CNY weakness regardless of the USD narrative in 2H23 (long USD/CNY on stronger DXY moves and short CNY basket on a weaker DXY).“
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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