The depreciation of RMB and inflation will not only increase the pressure of capital outflow, but also impact the domestic financial market. The sharp decline of B shares will also seriously affect our daily life, especially the growing demand for consumption abroad.
When prices rise and inflation, it is necessary to raise interest rates, which can prevent prices from rising too fast. The Fed's inflation target is 2%, which is very beneficial to economic growth. Therefore, when the inflation rate begins to rise, it is necessary to gradually raise interest rates to meet the demand of restraining the excessive price increase. The purpose of raising interest rates includes reducing money supply, curbing consumption, curbing inflation, encouraging deposits and slowing down market speculation. Raising interest rates can also be used as an indirect means to increase the value (exchange rate) of domestic or local currencies against other currencies. Take the Federal Reserve as an example. Raising interest rates will boost the dollar exchange rate. As an investment product denominated in US dollars, if the US dollar appreciates, the price of gold will be directly under pressure.
Raising interest rates means raising the benchmark interest rate. Raising interest rates means raising the interest rate of bank deposits, and the interest rate of loans is also higher. The background of raising interest rates is that the economic growth rate is too fast and there is a risk of overheating. In order to balance the economic risks, the central bank will choose to raise interest rates, that is, raise the benchmark interest rate to intercept some funds of banks, that is, reduce the money supply in the market. Raising interest rates will generally boost the local currency exchange rate while balancing economic risks, and correspondingly, it will also affect domestic exports. Once excessive, it will lead to the risk of deflation.
On the surface, the reasons for RMB depreciation are: the interest rate hike in the United States and the appreciation of the US dollar led to a sharp profit-seeking outflow of cross-border capital, and China's foreign exchange reserves were under pressure.
The depreciation of RMB will benefit the textile, steel and shipping industries. The profits of the textile and garment industry have been squeezed by the appreciation of RMB in the past decade. If the RMB continues to depreciate, it will make domestic orders relatively cheap, stimulate exports, improve profits and bring benefits to the clothing industry.
Overcapacity in the steel industry, in the case of RMB depreciation, will be more conducive to steel enterprises to go global, and then accelerate the pace of domestic destocking through the east wind of the Belt and Road Initiative, so that the competitiveness of enterprises will glow with new vitality. These benefits to the export industry will also promote the re-development of freight business. At the same time, the depreciation of RMB will inhibit the further expansion of the sales of imported goods.