(ATF) Today’s People’s Bank of China (PBoC) foreign exchange and medium-term lending facility actions signalled that the central bank is largely satisfied with its overall monetary policy stance in support of ongoing economic recovery.
The PBoC set central parity for the yuan against the US dollar at 6.9362, another new high from early March.
The Bank also injected 700 billion yuan (US$101 billion) of one-year funding into the banking system via the MLF. Contrary to a Bloomberg headline, I do not see this as a signal of easier monetary policy ahead, but mainly as a modest injection to forestall overly tight liquidity conditions.
The stock market reacted positively to the measures. The CSI300 index was up 2.35% and is now up 15% year-to-date compared to 4.4% for the S$P500. Today’s rise was led by financials and insurers – hardly what one would expect if monetary easing were in the wind.
Investors are betting that stronger economic gains will power stock market gains, not a lot of central bank hot air and desperate easing as in the USofA.
During the trading day, the CNY moved in a range of 6.9357 to 6.9471 and currently (7pm HK time) stands at 6.9406. The offshore yuan (CNH) trades at 6.9373.
Currency, liquidity and equity performance are in a sweet spot and the yuan, far from being in danger of devaluation as in August 2015, is trading at the strongest level in six months.
The dollar picture is the opposite. On the dollar index (DXY), the USD traded in the 92.8910 – 93.1270.
The US dollar has not traded with a 92 handle since May of 2018.