China’s Renminbi Reversal Sparks Economic Hope
Beijing's strong warning against renminbi devaluation speculation and the early release of positive lending data bolstered China's currency, which rebounded from a 16-year low.
The People’s Bank of China asserted its capability and confidence in maintaining renminbi exchange rate stability, leading to a 1 percent surge in the renminbi against the dollar.
The central bank emphasized its determination to counter one-sided speculation, with state-run banks actively acquiring renminbi on Monday, indicating a more forceful stance.
Renminbi gains outpaced the dollar and other currencies, with the dollar index declining 0.3 percent in Asian trading.
Beijing also released better-than-expected lending data, indicating an end to deflation in August, with Chinese banks extending Rmb1.36tn ($186bn) in new renminbi loans, surpassing market expectations.
The lending surge boosted the benchmark CSI 300 index by as much as 1.3 percent during the afternoon session.
Morgan Stanley analysts attributed the credit rebound to increased local government special bond issuance and anticipated further credit growth in September due to robust government bond issuance and relaxed mortgage rate requirements.
They cautioned that the sustainability of this growth relied on policy measures and called for stronger central government-led fiscal stimulus to prevent a debt-deflation cycle.
Possible measures include increased funding for urban redevelopment, social housing, and green infrastructure and local government debt resolution through central government-led debt swaps.
Zhi Xiaojia, Chief China Economist at Crédit Agricole, highlighted that the credit data showed early signs of stabilization, thanks to the central bank’s efforts, although uncertainties remain.