Even after President Xi Jinping has asked for China’s central bank to trade government bonds, the outcome is likely to remain limited as the bank does not want to trigger negative outcomes for inflation and exchange rates.
On Thursday, the People’s Bank of China (PBoC) set the USD/CNY central rate for the trading session ahead at 7.0948 as compared to the previous day's fix of 7.0946 and 7.2259 Reuters estimates.
Investors banking on Chinese policymakers providing aggressive stimulus are trapped in an old view of China and its economy. The news is far from all doom and gloom, but investors need to accept that China’s economy will remain vulnerable and recovery will take time.