PBoC Deputy Governor reiterates CNY meets requirements for SDR inclusion

The PBoC Deputy Governor Yi Gang in an address to the IMF last Friday reiterated that the yuan fulfils the requirements for inclusion in the SDR (Special Drawing Rights). He sketched out the reforms China has implemented or will continue to undertake in order to meet the operational requirements for SDR inclusion. 

These include enhancing data transparency, allowing market forces to play a bigger role in dictating interest and exchange rates and opening up the bond and FX markets to foreign central banks. On the economy, Yi Gang noted that although it is facing some headwinds, there are also some positive signs of bottoming out. 

On monetary policy, he gave few hints of aggressive easing anytime soon. Instead, he noted that PBoC will continue to implement a sound monetary policy stance, one that neither too tight nor too loose. 

On FX, he said CNY is more aligned with market forces after the recent depreciation, expects it to be more flexible going forward, and to float around the 'equilibrium level' in both ways. 

On the data front, September's data set are due starting this week. The trade figures are due on Tuesday which will be seen as an important input for Q3 GDP which is scheduled for 19 October. The tradable sector should continue to face headwinds going by the weak trade figures from South Korea and Taiwan in the past week. 

"China's exports to drop 5.4% yoy vs -5.5% previously. Imports are seen down sharply by 18.3% vs -13.8% in August, largely due to sluggish demand for commodities. On Wednesday, CPI and PPI are due with CPI inflation seen around 1.8% yoy but PPI inflation remaining in negative territory at -6% yoy. The monetary aggregates including M2 and new loans are also expected sometime this week", says Commerzbank.