Trade war deal could allow China to loosen monetary policy and exchange rate flexibility, analysts say

A trade deal with US may have emboldened China’s central bank to ease monetary policy, analysts say

China’s central bank pledges to give market forces a ‘decisive’ role in determining the value of the currency but adds it wants to keep rates ‘stable’

Reading Time:3 minutes

The central bank hinted at a more flexible stance this year. Photo: Reuters

Published: 10:06am, 6 Jan 2020Updated: 6:39pm, 7 Jan 2020

A phase one trade deal between China and the United States could make the central bank in Beijing more willing to ease monetary policy at home and let the yuan exchange rate fluctuate, according to analysts.

The People’s Bank of China said in its 2020 work plan published on Sunday that it would let the market play “a decisive role” in determining exchange rates this year, although the central bank reiterated its long-standing position that it would keep the yuan exchange rate “basically stable”.

The central bank did not mention the proposed trade deal with the US, which US President Donald Trump has said will be signed later this month, but allowing the yuan to move more freely would be in line with a fact sheet published by the Office of the US Trade Representative about the deal last month.

It said the agreement would require Beijing to increase transparency over the yuan’s exchange rate and to avoid using currency devaluation as a way to boost exports.

The central bank also said its monetary policy would be “flexible” in 2020 and it would keep “growth in money supply, credit and aggregate social financing in line with economic development” – a more dovish stance on borrowing than previous years.