China will stop any messy Yuan slide, says Morgan Stanley

China does not use the depreciation of the yuan as a tool in its trade dispute with the United States, and it will likely intervene to avoid any disorderly decline, according to Morgan Stanley.

"We do not expect policy makers to depreciate," China's economists at the bank, led by Robin Xing in Hong Kong, wrote in a July 1 note, referring to the renminbi, the name official currency. "The PBOC could step up the intervention if the risk of depreciation intensified."

The People's Bank of China has already signaled that it was on the alert for excessive declines, setting the yuan's benchmark rate on the strong side of what the models predicted last week. according to Morgan Stanley. Goldman Sachs Group strategists also concluded on Friday that the PBOC "leaned against excessive depreciation in recent days".

Morgan Stanley sees the yuan at $ 6.65 per dollar at the end of September, 0.4% less than closing in Shanghai on Friday. His "base case" is that the currency ends the year at 6.6. The lesson of 2015, when China devalued its currency and then collapsed to halt capital outflows and expectations of continued decline of the yuan, is that active material depreciation can jeopardize financial stability, said the bank. The dollar over the past two weeks is partly a retracement of its outperformance from February to mid-June, Morgan Stanley economists said. This prior divergence was a function of the Chinese bond market, which has become increasingly open to foreign investors and benefits from the diversification measures taken by global fund managers.

The recent fall also coincides with a weakening of Chinese economic data. the PBOC to consolidate bank lending as against the crackdown of regulators on the shadow banking system. According to Morgan Stanley, trade tensions with the United States have led market participants to interpret the PBOC as changing its political stance: "The possibility that the market continues to misunderstand the PBOC's policy Overcoming risks "For the short-term currency, Xing and his colleagues have written." If the trade-weighted CNY index was to reverse all divergences with the dollar from February to mid-June, the USDCNY could depreciate further. 3% or more, at 6.8-6.9 ", they write, using the ticker for the onshore yuan.

Officials can intervene if the yuan, measured against the currencies of its trading partners, falls by more than 0 , 6% to 0.7% in a single session, said Morgan Stanley.Until now, the declines have been about 0.5 percent.