According to Nomura’s Chief China economist Ting Lu, the People’s Bank of China (PBOC) needs to stimulate the economy to counter a slowdown by swapping the yuan for foreign exchange.
“First, it could prevent the yuan from appreciating further.”
“Second, it could raise the PBOC’s FX reserves in a time of rising market fear of Chinese corporates’ offshore dollar bonds defaults.”
“Third, it could add liquidity to the economy, which is slowing to a worrisome pace.”
“We expect the net purchases of FX by the PBOC could increase significantly in the coming months.”
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