SHANGHAI (Reuters) – China’s central bank delivered two major surprises to investors this week: it engineered a sharp decline in the yuan against the dollar and at the same time relaxed its tight grip on money markets that had kept interest rates firm.
In effect, the central bank was playing bad cop with speculators in the foreign exchange market to try to shake out one-way appreciation bets, while making nice with money market traders.
Mild drain by PBOC during open mkt ops today, rates down. Pressure on rates to encourage deleveraging evaporates. So much for “new normal”?
SHANGHAI/BEIJING (Reuters) – China’s central bank rattled speculators this week by engineering a sudden fall in the yuan against the dollar, but economists warn that induced downside risk was no substitute for true liberalization in the currency market.
Unless the central bank takes bolder steps toward allowing the market to determine the exchange rate, traders believe the correction could do little more than present speculators with a fresh buying opportunity.