Yuan Gains Traction On The Heels Of China’s Strong GDP

Yuan Gains Traction On The Heels Of China’s Strong GDP - Yuan banknotes
Bill Cascade   NEW 20/04/2019 00:00:00 Finance

The Yuan reacted positively following a recent report of strong economic growth in the first quarter of 2019, thus pointing towards the likelihood of a stabilizing Chinese economy. China’s economy is currently the second largest economy in the world, as well as the largest and most influential economy in the Asian region. The April 17 announcement about China’s strong GDP and a better than anticipated economic performance in Q1 2019 also influenced most Asian currencies to rally.

The Chinese economy grew by a robust 6.4% rate in Q1 2019 from the previous year and has even managed to outshine analyst expectations. They predicted that China's economy would continue to slow down, but it has proved otherwise. Some of the reasons for the strong economic growth include robust consumer demand and a surge in industrial production.

The Malaysian Ringgit had an inverse performance and what it means

Despite the positive impact of China's strong GDP on most of the currencies in Asia, the Malaysian Ringgit went against the current and grew softer due to capital outflow concerns. The Ringgit tanked by 0.3% to around 4.143 against the dollar. This means that the Malaysian currency might face yet another bearish session. This is after the recent report released earlier this week revealing that Malaysia might be potentially excluded from the World Government Bond Index (WGBI).

The report has sparked fears about outflows worth roughly USD 8 billion If the FTSE excludes Malaysia from the WGBI. The country has been part of the WGBI for the past 18 or so years. These concerns may add more pressure to the Ringgit.

The report influenced the Malaysian Ringgit’s poor performance, thus bringing the currency to its lowest point against the U.S dollar in almost three months. The currency also took a hit after Malaysia's massive decline in its non-oil exports in March this year. The last time that such a huge decline happened was in 2016. The city-state reported underwhelming economic growth in Q1 2019 and the weak trade points towards a potentially continued trend.

China maintains interest rate despite lending a large sum to financial institutions

The Chinese Central Bank, also known as the People’s Bank of China (PBOC) recently announced that it would maintain the current interest rate in the financial market despite lending 200 billion yuan to financial institutions in the country. The Chinese Central Bank lent the money through a medium-term lending facility (MLF) whose duration is one year. The PBOC also revealed that the new-year MLF’s interest rate was set at 3.30%.

Similar loans valued at 366.5 billion yuan reached their expiry date on Wednesday. Meanwhile, the PBOC also revealed that it also pumped 160 billion yuan into the economy using seven-day reverse repos. However, no reverse repos expired, and the Chinese Central Bank has so far transferred about 6.5 billion through daily market operations.

The PBOC uses the same channel to directly deliver funds to economic sectors that need them the most. All the loans that will expire in Q2 2019 in China are valued at roughly 1.1855 trillion yuan according to Reuters.

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