PBoC intervention on the cards? – Danske Bank

Sverre Holbek, Senior Analyst at Danske Bank, sees the possibility that the Chinese central bank could act in case of unwelcomed depreciation of the Yuan.

Key Quotes

“The Chinese renminbi received support from data showing that the foreign reserves were fairly stable in March, highlighting that capital outflows have waned”.

“China is facing a new dilemma though. While outflows have stopped and CNY is stronger against the USD, the CNY basket is actually at the weakest level in a year”.

“This is due to the broad based USD depreciation. Hence, CNY is weakening against, for example, EUR and JPY”.

“This raises the question whether China will let markets weaken the basket without intervention as long as it does not disturb financial stability. If it continues it will be at odds with their new policy of managing the basket around the ‘equilibrium level’.