China’s Central Bank Takes A Swipe At Speculators

CHINA’S CENTRAL BANK has been acting out of character this week — or at least out of recent character. It has surprised and alarmed investors by unexpectedly pushing down the value of the yuan against the dollar and easing its tight grip on money markets. Its goals, this Bystander assumes, have been to take another shot at the speculators who still see the appreciation of the currency as a one-way bet, and to ease the high interest rates that continue to attract hot money.

Hard-pressed equities and real estate investors won’t be sorry to see rates easing either. Nor will the shadow banking system nor highly indebted state-owned enterprises. All of which might make for a more welcoming backdrop to the annual session of the National People’s Congress due to start shortly.

However, juicing the slowing pace of growth and forestalling any unseemly defaults in the financial system while lawmakers are gathered comes at the price of suspending the central bank’s effort to let down the country’s credit bubble and deleverage systemic financial risk. That, though, cannot continue for too long if the bigger goal — rebalancing the economy towards greater growth from consumption and away from exports and infrastructure investment — is to be pursued.

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