Many market observers linked the central bank’s move to the recent release of trade figures showing that exports from China fell by over 8 per cent in July, continuing months of decline, apart from a slight improvement in June. China continued to grow its exports in spite of the stronger currency and has also sustained the exports of other countries, such as Germany, Brazil and Australia.
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The overnight Shanghai Interbank Offered Rate (Shibor), a key barometer for interbank lending in China, climbed to 1.75 percent on Tuesday, up markedly from around 1.4 percent at the end of July.
“The opening up of the onshore bond market to more issuers will provide another channel for corporates to refinance their debt, including offshore US dollar debt”.
HSBC Malaysia Global Trade and Receivables Finance head Vincent Sugianto said the ample liquidity of Malaysia’s financial sector resulted in interest rates and Malaysian companies can use that to promote Malaysian products.
PBOC’s announcement had caught investors by surprise, as the currency of the world’s second largest economy had been deemed stable. The U.S. central bank, increasingly confident in the strength of the U.S. economy, is expected to raise the short-term rate it controls later this year. Shares in exporters such as Caterpillar and General Electric fell in the market rout this week, though many economists say the yuan’s drop so far isn’t significant enough to do much damage.
China has stated the currency adjustments were made in an attempt to move to a more market-driven exchange rate.
Central bank data released on Friday suggests that funds had been flowing out of China even before the latest currency move, due to a weakening Chinese economy and expectations of rising U.S. interest rates. Previously, authorities based the rate on a poll of market-makers. This meant that its open market operations this week injected a net 150 billion yuan.
The indexes had slumped more than 5 percent at one point in morning trade, after plunging 6 percent on Tuesday following comments by China’s securities regulator that the market has normalised and the government would allow market forces to play a bigger role in determining stock prices.
“For Australia, a lower renminbi should be seen as good news, ultimately”.
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On its part, China has increased its presence on the continent funding major infrastructure projects in a number of Sub-Saharan Africa countries as it sort to gain a upper hand in deals that involve raw material for its fast growing industries back home. By letting the money outpour happen without interfering in the currency, the central bank can keep domestic money supply smooth.
