Date
24 January 2017
China's central is reported to have reached consensus with the finance ministry to start buying assets from commercial bank. Photo: CNSA
China's central is reported to have reached consensus with the finance ministry to start buying assets from commercial bank. Photo: CNSA

China QE speculation sends renminbi reeling to 13-month low

Economists are split over whether China will undertake quantitative easing (QE) to inject liquidity into the economy through debt purchases, the Hong Kong Economic Journal reported Tuesday.

Speculation about an impending QE has sent the renminbi spiraling to a 13-month low.  

Chan Tak-cheung, head of currencies and interest rates trading of Bank of East Asia, blamed the decline on rumors that the People’s Bank of China (PBoC) will unveil QE anytime soon. 

Liao Qun, chief economist of CITIC Bank International, doubts China will undertake QE, saying it has other means at its disposal such as cutting benchmark interest rates and lowering the reserve requirement ratio for commercial banks.

Shen Jianguang, managing director and chief Asia economist of Mizuho Securities (Asia) Ltd., said there is a need to inject liquidity into the market in order to avoid a hard landing for the economy.

Other economists said China may soon announce details of a plan to allow lenders to use local government debt as collateral for loans from the central bank.

Earlier, Reuters reported that the Ministry of Finance and the PBoC had reached consensus that the central bank can directly buy assets from commercial banks.

That would be China’s version of QE at an unprecedented scale, the report said.

It came as the Chinese currency slumped to a five-week low to close at 6.22 against the US dollar Monday. The rate was 252 basis points weaker than Friday’s close, the steepest fall in 13 months.

The unit was down 0.35 percent to 6.2181 in offshore trading.

Translation by Vey Wong

[Chinese version中文版]

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