Risks of major renminbi devaluation are exaggerated

The lack of clarity in China’s data and clumsy communication of policy changes have allowed many scare stories to proliferate. Nonetheless, there is little justification for fears that the renminbi is set for a large devaluation across the board. While we are wary of reading too much into today’s jump in onshore rates against the US dollar (which is largely a catch-up after the holidays), the words and actions of the PBOC are consistent with a policy of maintaining stability on a trade-weighted basis.