2015-03-23

Chinese Monetary Policy to Remain Tight

Policy will remain tight, but the opportunity for capital outflows will increase.

Reuters: China to keep prudent monetary policy to support structural reforms
China could undermine structural reforms if it adopts an excessively loose monetary policy, central bank governor Zhou Xiaochuan said on Sunday, pledging to relax capital controls to help make the yuan currency fully convertible.

Zhou also sought to soothe concerns over the impact of volatile capital flows on China's economy, saying a war chest of foreign exchange reserves provides a buffer and the country has the capacity to deal with short-term speculative outflows.

SCMP: PBOC to further ease yuan capital controls in reserve currency bid
"There is a reasonably high chance that this year's vote will go China's way," said David Lubin, head of emerging markets economics at Citigroup, in a note on March 12.

"So we may soon be in a world where the renminbi becomes a reserve asset - which would happen by definition if it becomes part of the SDR - without being freely convertible."

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