The Chinese yuan is weakening against its US counterpart on Monday. Global investors have been monitoring Beijing’s monetary and fiscal efforts that could weigh on both the world’s second-largest economy and the currency. Are the global financial markets betting on a slumping economic landscape?
Investors were surprised on Monday when the People’s Bank of China (PBoC) left specific interest rates unchanged, leaving some to speculate that the central government is not ready to be more accommodative.
Officials left the one-year loan prime rate (LPR) held steady at 3.7%, while the five-year LPR stayed the same at 4.6% in February.
PBoC chief Yi Gang stated that policymakers want to maintain an accommodative monetary that is flexible and appropriate, adding that the institution will likely enhance support for certain parts of the economy, especially the weaker sectors.
Housing price growth eased last month, rising at an annualized rate of 2.3%. This is down from the 2.6% jump in December. Moreover, vehicle sales climbed 0.9% in January, up from the 1.6% drop in the previous month.
Next week, manufacturing and non-manufacturing data will be released for February. The purchasing managers’ index (PMI) readings are expected to ease.
Market analysts believe that Beijing will likely employ more fiscal and monetary support moving forward since inflation is relatively low.
“Without significant inflationary pressures to consider, there’s plenty of room to provide support and keep the exchange rate more or less in its current band,” said Christopher Smart, chief global strategist at Barings, a global investment management firm, in an interview with the South China Morning Post.
At the same time, others agree that the pandemic and the country’s COVID Zero endeavors are weighing on the nation’s growth, which some purporting that the economy could reach a period of stagflation.
The USD/CNY currency pair rose 0.15% to 6.3353, from an opening of 6.3256, at 13:31 GMT on Monday. The EUR/CNY advanced 0.31% to 7.1839, from an opening of 7.1615.