Market Will Set Yuan Level: China

Zhou’s comments seemed to bear out that expectation. At the annual conference of the PBOC, held at the same time as the annual Parliament meeting, Zhou had said, “There is a lot of room for RRR cuts. But we need to look at whether it’s necessary … and look at market liquidity. We cannot raise or cut RRR at will when we think there is room. We need to look at the liquidity condition, which is related to FX purchases and our international balance of payments.”

Weekend data indicated that China’s trade balance fell by $31.5 billion into negative territory in February as the country imported far more than it exported. Data released Friday had also shown that inflation was down as the country’s raging economy slowed; industrial output, bank lending and retail sales all showed figures that came in below predictions.

Dariusz Kowalczyk, senior economist and strategist for Asia ex-Japan at Credit Agricole CIB, said in a note that trade data “means a bigger need to stimulate domestic demand–via fiscal stimulus and monetary easing. So we expect 200 bps more in RRR cuts and 50 bps in interest rate cuts later this year.”