The PBoC faces difficult trade-offs among growth, currency and financial stability goals.
Growth appears to be the priority near-term; we see more RRR and rate cuts in the pipeline. Pressure on CNY may rise in case of a renewed trade war, despite recent respite on Fed cut expectations. Interventions in the CGB market are likely to give way to prudential measures to curb financial risks, Standard Chartered economists Shuang Ding and Hunter Chan note.
” “While the Chinese yuan has recently recovered earlier losses relative to the USD due to expectations of faster Fed rate cuts and narrowing rate differentials, the currency may come under pressure again if Trump wins the November election and implements a 60% tariff on China’s imports. We see limited scope for CNY depreciation in that case, as the benefit of a large devaluation appears elusive while capital outflow risk is likely to be instantaneous.
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