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.
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