China’s official monetary policy rates have been on hold for two years. But the policy, in reality, has been tightened as the nation has used other liquidity tools to manage a gradual rise in money market rates, noted Danske Bank in a research report. The Chinese monetary policy is expected to be on hold for some time, said Danske Bank. The aim was to cause a decline in financial leverage, which has risen in recent years, and along with other measures to take the froth out of the housing market.
The tightening of the monetary policy has not been aimed at combating inflation. Consumer price inflation remains at just 1.9 percent year-on-year in safe distance from the 3 percent target. Given the clear indications of an easing housing market, money market rates are expected to be widely flat in the quarters ahead.
“We expect USD/CNY to be broadly flat over the coming 12 months as relative rates versus the USD will work in favour of a weaker CNY, whereas our expectation of a weakening of the USD against the EUR would work in favour of a stronger CNY versus USD”, added Danske Bank.
At 14:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was highly bullish at 115.113, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 17.6352. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex
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