China Property:Implications of RMB Depreciation

PBOC weakens RMB reference rate by 1.9%: PBOC has today lowered the RMBreference rate by 1.86% to 6.2298/USD, with the aim to enhance the marketorientationand benchmark status of central parity under the new FX regime. Citi’shouse view (link) is that this implies the beginning of a measured RMB depreciationand USDCNY may hit 6.5 in the next 12 months (~4.2% depreciation from today’sfixing of 6.2298). To cope with potential capital outflow, Citi expects further liquidityeasing - five more RRR cuts and two more rate cuts in the next 12 months. Ourviews on the sector impact of this RMB depreciation are as follows: