The yuan is likely to advance moderately with China’s economic recovery gaining further momentum, according to the latest research report from Scotiabank. Further, China’s money and credit boom is expected to continue bolstering economic recovery the rest of the year.
Broad M2 money supply grew 8.6 percent y/y in March, the highest in 13 months. The market had expected a 8.2 percent rise, up from February’s 8.0 percent. Chinese banks extended a net CNY1.69 trillion of new yuan loans in March, compared to market expectations of CNY1.25 trillion in a Bloomberg poll.
Outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, increased 10.7 percent y/y in March. It was up from a 10.1 percent growth in February. In addition, China’s medium- and long-term loans rose 5.4 percent y/y in the first quarter, indicating a potential rebound in the nation’s industrial production growth along with rising manufacturing activity.
"In our view, the PBoC will likely roll over a CNY366.5 billion of MLF loans due to mature on Wednesday rather than delivering a RRR cut. Meanwhile, fiscal tools are used to spur growth as Chinese finance minister Liu Kun pledged last week that the nation will implement tax cuts and fee reductions of a larger scale," the report commented.
The WSJ reported that US Treasury Secretary Steven Mnuchin said Saturday the US and China are continuing to make progress on trade talks and "getting close to the final round of concluding issues."
Meanwhile, the deal could also include penalties for China if it manipulates its currency to increase exports, according to the WSJ. PBoC Deputy Governor Chen Yulu said in a statement to the International Monetary and Financial Committee (IMFC) on Saturday that "China will continue to improve the exchange rate mechanism and keep the yuan exchange rate in line with fundamentals at an adaptive equilibrium level," Scotiabank further noted.