China Stimulus Could Drive Yuan Lower

China’s sudden deployment of its Standing Liquidity Facility (SLF) last week to inject targeted stimulus funds into its biggest banks to boost the slowing economy could also signal an impending period of currency weakness.

While People’s Bank of China (PBOC) officials have said that slower growth is the “new normal”, Premier Li Keqiang’s latest comments that China will employ targeted easing measures shows the extent to which growth concerns are dominating policy making at the highest levels.

Use of the SLF – a policy tool created in 2013 to manage liquidity, akin to the U.S. Federal Reserve’s discount window – to inject 500 billion yuan ($81.4 billion) of three-month loans to the country’s five biggest banks, shows policymakers believe the time for decisive action has arrived.

The liquidity injection has many traders predicting a weakening of the currency – the time-nontenured way for Chinese policymakers to boost growth.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza