The renminbi onshore and offshore exchange rates' divergence will continue for some time. After the Aug 11 reform, the renminbi onshore and offshore exchange rates divergence has been maintained at about 300 to 600 points, which is far beyond the normal intervals.

In a normal market situation, the price of the offshore exchange rate follows the onshore market. However, once the subjects of the onshore market cannot figure out the future trend of the market, then the offshore market's financial institutions cannot come up with accurate pricing for the future exchange rate, so the fluctuation of the CNH (offshore yuan) will be dramatically enlarged. And because the transaction volume is very big, it will in turn affect the exchange rate pricing for the CNY (onshore yuan). This is what happened after the Aug 11 reform.

From the perspective of the entire financial market reform, the central bank won't connect exchange rate reform with promotion of imports and exports. Also, it won't have concerns about the lack of capability of intervention, and it won't stick to one certain point position. The target of reform is to strengthen the elasticity of exchange rate. While new information will be reflected in exchange rate fluctuation, the central bank's intervention policies will make adjustments accordingly.

All in all, this year, the fluctuation rate of the renminbi exchange rate will be key. It is predicted that the onshore market's implied fluctuation rate will gradually be increased to about 6 percent, and for the whole year the onshore renminbi's exchange rate against the US dollar will fluctuate between 6.4 and 6.8.

The author is deputy director of the Research Center for International Finance of the Institute of World Economics and Politics Research at the Chinese Academy of Social Sciences. The views do not necessarily reflect those of China Daily.

( China Daily European Weekly 01/29/2016 page10)